8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report Pursuant

to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 24, 2003

Hawthorne Financial Corporation

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 95-2085671
(I.R.S. employer identification number)

Commission file number: 0-1100

2381 Rosecrans Avenue
El Segundo, California 90245
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:

(310) 725-5000

TABLE OF CONTENTS

	Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
	Item 9. Regulation FD Disclosure
SIGNATURES
EXHIBIT 99.1
EXHIBIT 99.2

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits

Exhibit 99.1 Press Release dated July 24, 2003.

Exhibit 99.2 Script of Conference Call held July 24, 2003.

Item 9. Regulation FD Disclosure

The following information is furnished pursuant to Item 9. “Regulation FD Disclosure” and Item 12, “Disclosure of Results of Operations and Financial Condition.”

On July 24, 2003, the Registrant issued the press release attached as Exhibit 99.1, which is not filed but is furnished pursuant to Regulation FD.

On July 24, 2003, the Registrant held a conference call with analysts and investors, the script for which is attached as Exhibit 99.2, which is not filed but is furnished pursuant to Regulation FD.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	HAWTHORNE FINANCIAL CORPORATION
	By:	/s/ David Rosenthal
Date: July 30, 2003.		David Rosenthal Executive Vice President and Chief Financial Officer

EX-99.1 3 a91755exv99w1.txt EXHIBIT 99.1 Exhibit 99.1 [HAWTHORNE LOGO] HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE JULY 24, 2003 IMMEDIATE RELEASE Contact: Ms. Simone Lagomarsino, President and Chief Executive Officer (310) 725-5631 Mr. David Rosenthal, Chief Financial Officer (310) 725-1890 HAWTHORNE FINANCIAL REPORTS STRONG SECOND QUARTER EARNINGS FOR 2003 (El Segundo, CA) Hawthorne Financial Corporation, (NASDAQ:HTHR), parent company of Hawthorne Savings, F.S.B., today announced that second quarter 2003 net income increased 30.7% to $6.9 million, compared to $5.3 million a year earlier. Diluted earnings per share for the quarter were $0.83, representing an increase of 20.3%, compared to $0.69 for the second quarter of 2002. Year-to-date net income for 2003 grew to $13.6 million, an increase of 21.9%, compared with net income of $11.2 million, for the six months ended June 30, 2002. Net income resulted in diluted earnings per share, for the six months ended June 30, 2003 of $1.64, a 12.3% increase, compared to the $1.46 earned in the same period in 2002. QUARTERLY HIGHLIGHTS - The Company's net income of $6.9 million during the quarter and $13.6 million during the six months ended June 30, 2003 is evidence of Hawthorne's solid earnings power. - Loan originations increased 56.7% and 45.1% during the three and six months ended June 30, 2003, respectively, compared to the same periods in 2002, a reflection of the Bank's successful integration of its first acquisition. - During the six months ended June 30, 2003, non-interest bearing checking account balances increased 25.9% on an annualized basis, while annualized deposit growth was 12.3%, an indication of the Company's focus on building franchise value. - Deposit fee income increased 25.3% during the six months ended June 30, 2003, compared to the same period in 2002 as a result of new initiatives, including the Bank's new courtesy overdraft program. - The ratio of general and administrative expense ("G&A") (excluding other/legal settlement) to average assets improved to 1.65% for the six months ended June 30, 2003, compared with 1.84% for the year ended December 31, 2002, reflecting the Company's continued emphasis on efficiency. - Importantly, asset quality measurements remain at historically strong levels. - The Company's positive results were achieved in an environment characterized by: unprecedented low and volatile interest rates, significant volumes of prepayments of loans, aggressive competition for loan originations and a high demand for fixed rate loan products. This environment poses challenges relative to growing assets that provide acceptable yields. "Thanks to our superb team of employees, the Bank has gained additional strength in a challenging environment," said Simone Lagomarsino, the Company's President and Chief Executive Officer. "More importantly, we will not implement short-term initiatives, in the current volatile interest rate environment, that will compromise our underwriting standards or the firm foundation that we have established. We remain focused on the Company's long-term success," she said. "Accordingly, we are proactively evaluating strategies to protect against possible future increases in interest rates, including initiatives that will reduce our cost of funds in the future. Implementation of these strategies may result in somewhat slower deposit growth," added Ms. Lagomarsino. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 2 OF 11 RETURN ON ASSETS/RETURN ON EQUITY Key performance measurements for the second quarter were consistent with the first quarter of 2003. Net income for the three months ended June 30, 2003 resulted in an annualized return on average assets ("ROA") of 1.08%, compared with a ROA of 1.06% for the first quarter of 2003. The annualized return on average equity ("ROE") was 16.34% for the three months ended June 30, 2003, compared with 16.46% for the first quarter of 2003. NET INTEREST INCOME Net interest income (after provision for credit losses) of $19.7 million, for the current quarter, reflected an increase of 20.7% compared to the $16.3 million of net interest income earned in the second quarter of 2002. Net interest income (after provision for credit losses) earned in the six months ended June 30, 2003 was $40.9 million reflecting an increase of 22.3% compared to the same period in 2002. Net interest income was positively impacted year-over-year by: 1) inclusion of the net assets from the acquisition of First Fidelity in August 2002, 2) continued strong origination volume of $485.2 million, 3) the majority of ARM loans ($1.4 billion) reaching their contractual floors and 4) income from the investment securities portfolio. The Company's net interest income (after provision for credit losses) was $19.7 million for the second quarter of 2003, which was lower than the prior quarter of $21.1 million. This decrease was primarily due to the Company's yield on earning assets reducing faster than the Company's cost of funds. This is a result of the significant prepayments of higher yielding loans and to the fact that 67.6% of the Company's funding sources have rates that are contractually fixed. The average cost of funds for the Company decreased to 2.71% during the second quarter of 2003, and to 2.76% year-to-date compared to 3.57% and 3.67%, during the same periods in 2002. The reduction in the cost of funds is the result of the combination of the continued downward pressure on interest rates, maturing certificates of deposit with higher than current market rates, and the shift in the deposit mix. During the last half of 2003, approximately $447.7 million of CDs are scheduled to mature. The weighted average cost of these CDs is 2.33% which is approximately 1.00% higher than the current 6 month CD rate. The Bank believes this represents an opportunity to further lower the overall cost of deposits by year end. The Company's net interest margin for the three and six months ended June 30, 2003 was 3.18% and 3.31%, respectively, compared with 3.56% and 3.68% during the same periods in 2002. During 2003, both net interest income and net interest margin continued to be adversely impacted as borrowers refinanced loans, which resulted in $381.8 million in prepayments with a weighted average interest rate of 7.08% for the six months ended June 30, 2003, while new loan originations had a weighted average yield of 5.44% during the same period. As a result, the yield on loans receivable was 6.14% and 6.27% during the three and six months ended June 30, 2003, respectively, compared to 6.40% during the prior quarter and 7.35% and 7.48% during the same periods in 2002. Ms. Lagomarsino commented, "In light of initiatives that we have implemented to lower the cost of funds, and assuming a slowing of loan prepayments, we reiterate the previously announced guidance for 2003 net interest margin of 3.25% to 3.35%." NONINTEREST REVENUES Noninterest revenues were $2.2 million for the quarter representing an 80.1% increase compared to the same period in 2002. For the six months ended June 30, 2003, noninterest revenues were $3.7 million, a 48.3% increase, compared to the $2.5 million earned during the same period in 2002. Loan and other related fees constituted 53.2% of noninterest revenues for the six months ended June 30, 2003, compared to 65.8% during the same period in 2002. During both periods, these fees were comprised primarily of prepayment fees resulting from the high level of refinancings. Fee income on deposits increased 28.4% during the second quarter 2003, compared with the same period in 2002, as a result of the growth in core transaction deposits and other fee generating initiatives. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 3 OF 11 The Company continues to expand its customer product array, which includes a new courtesy overdraft program, designed to enhance customer retention and satisfaction while increasing income. As a result of the cross selling efforts by the Company's employees, the ratio of products per household increased to 2.64 at June 30, 2003, compared with 2.46 for the prior quarter. The Bank reiterates prior guidance that noninterest income will increase by 10% during 2003 compared to 2002. NONINTEREST EXPENSE Total G&A was $10.2 million and $21.4 million for the three and six months ended June 30, 2003, respectively, compared with $8.3 million and $16.3 million incurred in the same periods of 2002. "Improving efficiency remains a top priority and the results reflect our continued success in this regard, evidenced by the fact that G&A (excluding other/legal settlements) to average assets decreased to 1.65% for the six months ended June 30, 2003, compared with 1.84% for the year ended December 31, 2002," commented Ms. Lagomarsino. "In fact, the Company has been successful in significantly reducing G&A as a percentage of average assets in each of the last five years," she concluded. The Company's efficiency ratio was 46.99% for the six months ended June 30, 2003, which was better than the 47.62% achieved during the first quarter of 2003 and the 48.07% achieved during the year ended 2002. The Company remains committed to reducing the efficiency ratio to 45% in 2003 and reducing G&A (excluding other/legal settlements) to average assets to 1.60%. LOANS Loans receivable averaged $2.1 billion during the second quarter of 2003, which was relatively flat compared to the prior quarter, while reflecting a 28.5% increase compared to average loans outstanding during the second quarter of 2002. New loan originations were $248.7 million and $485.2 million for the three and six months ended June 30, 2003, respectively, which represented increases of 56.7% and 45.1%, compared to originations during the same periods in 2002. Ms. Lagomarsino said, "While loan originations remain at record levels, we are revising our guidance for loan growth for 2003 down to between flat and 5%, due to the high level of loan prepayments that we have experienced in the current volatile rate environment." DEPOSITS Total deposits increased to $1.8 billion at June 30, 2003, from $1.7 billion at December 31, 2002, a 12.3% annualized increase. As of June 30, 2003, the Bank had 68,505 total retail deposit accounts, 40,240 total households and 22,375 checking accounts, which reflected annualized increases from the year ended December 31, 2002 of 7.2%, 2.0% and 13.6%, respectively. The Bank's integration process is on track for the four branches it acquired last year in Orange and San Diego Counties. As planned, two of the four have been moved to new locations. The Tustin office was relocated to Irvine Northpark and the Del Mar office was moved to a more desirable location within Del Mar. The Orange and San Diego locations remain the same. The goal to increase core customers in these offices is being realized. From December 31, 2002 to June 30, 2003, the percentage of transaction accounts to total deposits in these four offices has increased from approximately 23.3% to 25.1%, respectively. In June, the Company opened two branches, increasing the total number of branches to fifteen. The Baldwin Hills branch, in Los Angeles County, through a strategic alliance with Operation HOPE, Inc., offers a full range of services for the residents of Central Los Angeles. The second full-service retail office is located in the Irvine Oak Creek corridor of Orange County. ASSET QUALITY Management is pleased to report that classified assets remain at historically low levels. At June 30, 2003, classified assets totaled $18.6 million, or 0.71% of total Bank assets, compared to $45.1 million, or 2.41% of total Bank assets, a year earlier. Year-to-date, classified assets have decreased $5.1 million, or approximately 21.6%. During the second quarter, nonaccrual loans increased by $1.3 million as a result of the addition of one new loan, however, the HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 4 OF 11 ratio of nonaccrual loans to total loans of 0.37% remains lower than the Bank's peer group. At June 30, 2003, the ratio of total allowance for credit losses to loans receivable, net of specific valuation allowance, was 1.65%, compared with 1.64% at December 31, 2002 and 1.77% at June 30, 2002. Based on the current assessment of asset quality and economic indicators, the Bank anticipates that the provision for credit losses for the remainder of the year will be consistent with the first half of 2003. STOCK REPURCHASES During the second quarter of 2003, 20,409 shares were repurchased at an average price of $32.86. As of June 30, 2003, cumulative repurchases were 1,326,392 shares at an average price of $21.87. Currently, $1.6 million remains available for additional share repurchases under existing board approved authorizations. CAPITAL LEVELS At June 30, 2003, the Bank remained well-capitalized with core, tier 1 and risk-based capital ratios of 7.56%, 10.91% and 12.17%, respectively. The minimum ratios for well-capitalized banks are 5%, 6% and 10% for core capital, tier 1 and risk-based capital, respectively. CONFERENCE CALL The Company will host a telephone conference call today, July 24, 2003, to discuss the results of the second quarter and to answer questions of participants. The call is scheduled to begin at 1:00 p.m. Eastern time (10:00 a.m. Pacific). The teleconference dial in number is (800) 901-5226, reference "Hawthorne Savings - ID#65205732". Please call at least 10 minutes before the call is scheduled to begin. Audio access to the conference call will also be available through a live Webcast over the Internet at www.hawthornesavings.com. The Webcast of this conference call will be available for replay through August 22, 2003 by accessing the same link. ABOUT HAWTHORNE SAVINGS Hawthorne Savings, F.S.B., with total assets of $2.6 billion, operates fifteen branches in the coastal counties of Southern California, from Westlake Village at the western edge of Los Angeles to Mission Bay in San Diego. The Company specializes in real estate secured loans within the markets it serves, including: 1) permanent loans collateralized by single family residential property, 2) permanent loans secured by multi-family residential and commercial real estate and 3) loans for the construction of multi-family residential, commercial and individual single family residential properties and the acquisition and development of land for the construction of such projects. The Company funds its loans predominantly with retail deposits generated through its fifteen full service retail offices and FHLB advances. Hawthorne Savings, F.S.B., continues to keep pace with the changing face of banking by regularly introducing its customers to new products, such as the Global Access Check Card, online banking and investments. For more information, please call 888-TRUE-411 or visit the Bank online at www.hawthornesavings.com. * * * * * When used in this press release or in future press releases, filings by Hawthorne Financial Corporation ("Company") with the Securities and Exchange Commission ("SEC"), or other public or stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project", "believe" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers that all forward-looking statements are necessarily speculative and not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Also, the Company wishes to advise readers that various risks and uncertainties could affect the Company's financial performance and cause actual results for future period to differ materially from those anticipated or projected. Specifically, the Company cautions readers that important factors could affect the Company's business and cause HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 5 OF 11 actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company, including: general economic conditions in its market area, particularly changes in economic conditions in the real estate industry or real estate values in our market, changes in market interest rates, loan prepayments increasing or continuing at the current pace, risk associated with credit quality, outcome of pending litigation, inherent market risk associated with treasury activities, the Company's ability to successfully implement new strategic initiatives and other risks with respect to its business and/or financial results detailed in the Company's press releases and filings with the SEC. Stockholders are urged to review the risks described in such releases and filings. The risks highlighted herein should not be assumed to be the only factors that could affect future performance of the Company. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 6 OF 11 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (Dollars in thousands)

JUNE 30, DECEMBER 31, 2003 2002 ----------- ----------- Assets: Cash and cash equivalents $ 16,415 $ 21,849 Investment securities available-for-sale, at fair value 348,154 267,596 Loans receivable (net of allowance for credit losses of $35,341 in 2003 and $35,309 in 2002) 2,103,105 2,114,255 Accrued interest receivable 10,883 11,512 Investment in capital stock of Federal Home Loan Bank, at cost 33,238 34,705 Office property and equipment at cost, net 5,722 5,106 Deferred tax asset, net 8,521 10,068 Goodwill 22,970 22,970 Intangible assets 1,183 1,388 Investment securities awaiting settlement 30,354 -- Other assets 32,743 5,521 ----------- ----------- Total assets $ 2,613,288 $ 2,494,970 =========== =========== Liabilities and Stockholders' Equity: Liabilities: Deposits: Noninterest-bearing $ 44,970 $ 39,818 Interest-bearing: Transaction accounts 649,037 597,528 Certificates of deposit 1,070,722 1,025,464 ----------- ----------- Total deposits 1,764,729 1,662,810 FHLB advances 576,736 600,190 Capital securities 51,000 51,000 Investment securities awaiting settlement 30,354 -- Accounts payable and other liabilities 17,184 17,904 ----------- ----------- Total liabilities 2,440,003 2,331,904 ----------- ----------- Stockholders' Equity: Common stock -- $0.01 par value; authorized 20,000,000 shares; issued, 9,015,102 shares (2003) and 8,576,048 shares (2002) 90 86 Capital in excess of par value-- common stock 82,027 81,087 Retained earnings 118,774 105,134 Accumulated other comprehensive income 1,374 1,504 Less: Treasury stock, at cost-- 1,331,792 shares (2003) and 1,188,383 shares (2002) (28,980) (24,745) ----------- ----------- Total stockholders' equity 173,285 163,066 ----------- ----------- Total liabilities and stockholders' equity $ 2,613,288 $ 2,494,970 =========== ===========

HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 7 OF 11 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)

THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Interest revenues: Loans $ 32,627 $ 30,385 $ 66,800 $ 62,893 Investments securities 2,603 69 5,555 69 Investment in capital stock of FHLB, fed funds and other 331 1,089 795 1,950 ---------- ---------- ---------- ---------- Total interest revenues 35,561 31,543 73,150 64,912 ---------- ---------- ---------- ---------- Interest costs: Deposits 9,403 8,493 18,972 18,027 FHLB advances 5,584 5,141 11,397 10,293 Senior notes -- 805 -- 1,611 Capital securities 755 599 1,528 903 ---------- ---------- ---------- ---------- Total interest costs 15,742 15,038 31,897 30,834 ---------- ---------- ---------- ---------- Net interest income 19,819 16,505 41,253 34,078 Provision for credit losses 100 170 400 670 ---------- ---------- ---------- ---------- Net interest income after provision for credit losses 19,719 16,335 40,853 33,408 Noninterest revenues: Loan related and other fees 1,078 790 1,964 1,638 Deposit fees 466 363 922 736 Other 608 42 803 114 ---------- ---------- ---------- ---------- Total noninterest revenues 2,152 1,195 3,689 2,488 Income from real estate operations, net (4) -- (3) 69 Noninterest expenses: General and administrative expense: Employee 5,475 4,700 11,665 9,732 Operating 2,278 1,516 4,679 3,019 Occupancy 1,390 941 2,576 1,855 Professional 339 599 786 706 Technology 535 371 1,084 740 SAIF premiums and OTS assessments 165 132 330 268 Other/legal settlements 38 -- 264 20 ---------- ---------- ---------- ---------- Total general and administrative expense 10,220 8,259 21,384 16,340 ---------- ---------- ---------- ---------- Income before income taxes 11,647 9,271 23,155 19,625 Income tax provision 4,743 3,987 9,515 8,439 ---------- ---------- ---------- ---------- Net income $ 6,904 $ 5,284 $ 13,640 $ 11,186 ========== ========== ========== ========== Basic earnings per share $ 0.90 $ 0.91 $ 1.79 $ 2.00 ========== ========== ========== ========== Diluted earnings per share $ 0.83 $ 0.69 $ 1.64 $ 1.46 ========== ========== ========== ========== Weighted average basic shares outstanding 7,690 5,821 7,633 5,597 ========== ========== ========== ========== Weighted average diluted shares outstanding 8,322 7,665 8,331 7,646 ========== ========== ========== ==========

HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 8 OF 11 SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS (UNAUDITED) (Dollars in thousands)

JUNE 30, DECEMBER 31, JUNE 30, 2003 2002 2002 ---------- ---------- ---------- Risk elements: Nonaccrual loans $ 9,649 $ 7,675 $ 6,081 Real estate owned, net -- -- -- ---------- ---------- ---------- 9,649 7,675 6,081 Performing loans classified substandard or lower (1) 8,904 16,002 38,984 ---------- ---------- ---------- Total classified assets $ 18,553 $ 23,677 $ 45,065 ========== ========== ========== Total classified loans $ 18,553 $ 23,677 $ 45,065 ========== ========== ========== Loans restructured and paying in accordance with modified terms (2) $ 2,351 $ 2,468 $ 2,317 ========== ========== ========== Gross loans before allowance for credit losses $2,138,446 $2,149,564 $1,620,857 ========== ========== ========== Loans receivable, net of specific valuation allowance $2,138,070 $2,149,376 $1,619,807 ========== ========== ========== Delinquent loans: 30 - 89 days $ 6,469 $ 5,357 $ 9,920 90+ days 6,989 7,175 1,931 ---------- ---------- ---------- Total delinquent loans $ 13,458 $ 12,532 $ 11,851 ========== ========== ========== Allowance for credit losses: General valuation allowance ("GVA") $ 34,965 $ 35,121 $ 27,607 Specific valuation allowance ("SVA") 376 188 1,050 ---------- ---------- ---------- Total allowance for credit losses $ 35,341 $ 35,309 $ 28,657 ========== ========== ========== Net loan charge-offs: Net charge-offs for the quarter ended (3) $ 265 $ 664 $ 189 Percent to loans receivable, net of SVA (annualized) 0.05% 0.12% 0.05% Percent to beginning of period allowance for credit losses (annualized) 2.99% 7.40% 2.64% Selected asset quality ratios at period end: Total nonaccrual loans to total assets 0.37% 0.31% 0.32% Total allowance for credit losses to loans receivable, net of SVA 1.65% 1.64% 1.77% Total GVA to loans receivable, net of SVA 1.64% 1.63% 1.70% Total allowance for credit losses to nonaccrual loans 366.27% 460.05% 471.25% Total classified assets to Bank core capital and GVA 8.05% 10.81% 23.04%

- ------------------------------------- (1) Excludes nonaccrual loans. (2) Troubled debt restructured loans not classified and not on nonaccrual. (3) During the course of the year, charge-offs are anticipated and generally reflected as specific valuation allowances. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 9 OF 11 NET INTEREST INCOME (UNAUDITED) (Dollars in thousands)

THREE MONTHS ENDED JUNE 30, ------------------------------------------------------------------------- 2003 2002 ----------------------------------- ----------------------------------- WEIGHTED WEIGHTED AVERAGE REVENUES/ AVERAGE AVERAGE REVENUES/ AVERAGE BALANCE COSTS YIELD/COST BALANCE COSTS YIELD/COST ----------- --------- ---------- ----------- --------- ---------- Assets: Interest-earning assets: Loans receivable (1) $ 2,126,756 $ 32,627 6.14 % $ 1,654,830 $ 30,385 7.35 % Investment securities 331,474 2,603 3.14 8,722 69 3.17 Investment in capital stock of Federal Home Loan Bank 33,792 321 3.81 25,001 382 6.13 Cash, fed funds and other 2,169 10 1.85 169,220 707 1.68 ----------- --------- ----------- --------- Total interest-earning assets 2,494,191 35,561 5.71 1,857,773 31,543 6.80 --------- -------- --------- -------- Noninterest-earning assets 69,247 3,846 ----------- ----------- Total assets $ 2,563,438 $ 1,861,619 =========== =========== Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits $ 1,718,063 $ 9,403 2.20 % $ 1,151,892 $ 8,493 2.96 % FHLB advances 549,508 5,584 4.02 468,615 5,141 4.34 Senior notes - - - 25,778 805 12.50 Capital securities 51,000 755 5.92 33,824 599 7.08 ----------- --------- ----------- --------- Total interest-bearing liabilities 2,318,571 15,742 2.71 1,680,109 15,038 3.57 --------- -------- --------- -------- Noninterest-bearing checking 44,596 37,130 Noninterest-bearing liabilities 31,236 20,258 Stockholders' equity 169,035 124,122 ----------- ----------- Total liabilities and stockholders' equity $ 2,563,438 $ 1,861,619 =========== =========== Net interest income $ 19,819 $ 16,505 ========= ========= Interest rate spread 3.00 % 3.23 % ========== ========== Net interest margin 3.18 % 3.56 % ========== ==========

- ------------------------------------- (1) Includes the interest on nonaccrual loans only to the extent it was paid and recognized as interest income. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 10 OF 11 NET INTEREST INCOME (UNAUDITED) (Dollars in thousands)

SIX MONTHS ENDED JUNE 30, -------------------------------------------------------------------------- 2003 2002 ----------------------------------- ------------------------------------ WEIGHTED WEIGHTED AVERAGE REVENUES/ AVERAGE AVERAGE REVENUES/ AVERAGE BALANCE COSTS YIELD/COST BALANCE COSTS YIELD/COST ----------- --------- ---------- ------------ --------- ---------- Assets: Interest-earning assets: Loans receivable (1) $ 2,135,362 $ 66,800 6.27 % $ 1,686,078 $ 62,893 7.48 % Investment securities 324,270 5,555 3.43 4,385 69 3.17 Investment in capital stock of Federal Home Loan Bank 34,323 767 4.51 24,805 756 6.15 Cash, fed funds and other 4,046 28 1.40 144,078 1,194 1.67 ----------- --------- ------------ --------- Total interest-earning assets 2,498,001 73,150 5.87 1,859,346 64,912 7.00 --------- --------- --------- ------ Noninterest-earning assets 60,362 2,438 ----------- ------------ Total assets $ 2,558,363 $ 1,861,784 =========== ============ Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits $ 1,696,931 $ 18,972 2.25 % $ 1,156,907 $ 18,027 3.14 % FHLB advances 566,329 11,397 4.00 476,265 10,293 4.30 Senior notes - - - 25,778 1,611 12.50 Capital securities 51,000 1,528 5.99 23,967 903 7.54 ----------- --------- ------------ --------- Total interest-bearing liabilities 2,314,260 31,897 2.76 1,682,917 30,834 3.67 --------- --------- --------- ------ Noninterest-bearing checking 42,959 36,546 Noninterest-bearing liabilities 34,775 19,864 Stockholders' equity 166,369 122,457 ----------- ------------ Total liabilities and stockholders' equity $ 2,558,363 $ 1,861,784 =========== ============ Net interest income $ 41,253 $ 34,078 ========= ========= Interest rate spread 3.11 % 3.33 % ========== ========= Net interest margin 3.31 % 3.68 % ========== =========

- ------------------------------------- (1) Includes the interest on nonaccrual loans only to the extent it was paid and recognized as interest income. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2003 RESULTS JULY 24, 2003 PAGE 11 OF 11 NET LOAN PORTFOLIO COMPOSITION (UNAUDITED) (Dollars in thousands)

JUNE 30, 2003 DECEMBER 31, 2002 ------------------------- ------------------------ BALANCE PERCENT BALANCE PERCENT ------------ --------- ------------ -------- Single family residential $ 836,421 39.33% $ 851,268 39.81% Income property: Multi-family 731,983 34.42% 689,100 32.22% Commercial 381,423 17.93% 387,354 18.11% Development: Multi-family 47,381 2.23% 57,037 2.67% Commercial 25,972 1.22% 41,168 1.93% Single family construction: Single family residential 73,217 3.44% 75,218 3.52% Land 26,659 1.25% 32,612 1.52% Other 3,826 0.18% 4,738 0.22% ------------ --------- ------------ -------- Total loan principal (1) $ 2,126,882 100.00% $ 2,138,495 100.00% ============ ========= ============ ========

- ------------------------------------- (1) Excludes net deferred fees and costs.

SELECTED FINANCIAL DATA (UNAUDITED) (1) THREE MONTHS ENDED SIX MONTHS ENDED (Dollars in thousands) JUNE 30, JUNE 30, -------------------- -------------------------- 2003 2002 2003 2002 ------- ------- ---------- ---------- PERFORMANCE RATIOS Return on average assets (2) 1.08% 1.14% 1.07% 1.20% Return on average equity (2) 16.34% 17.03% 16.40% 18.27% Efficiency ratio (3) 46.34% 46.66% 46.99% 44.63% G&A to average assets (4) 1.65% 1.75% GROWTH RATIOS (2) Total assets 9.48% 1.95% Loans receivable, net -1.05% -13.70% Total deposits 12.26% -1.29%

JUNE 30, JUNE 30, 2003 2002 ---------- ---------- BANK CAPITAL RATIOS Core capital $ 195,449 $ 167,964 Ratio 7.56% 8.98% Tier 1 capital $ 195,449 $ 167,964 Ratio 10.91% 13.23% Risk-based capital $ 218,004 $ 183,990 Ratio 12.17% 14.49%

- ------------------------------------- (1) All ratios were calculated based on net income. (2) Annualized. (3) Represents total general and administrative expense (excluding other/legal settlements) divided by net interest income before provision for credit losses and noninterest revenues. (4) Represents annualized total general and administrative expense (excluding other/legal settlements) divided by average assets. EX-99.2 4 a91755exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 OPERATOR Good day ladies and gentlemen and welcome to the Hawthorne Financial Corporation second quarter earnings call. At this time, all participants are in a listen-only mode. My name is Mike. And I will be your conference coordinator today. If at any time during the call you require assistance please press star followed by a 0 and a conference coordinator will be happy to assist you. As a reminder this conference is being recorded. I would now like to turn the program over to your host for today's conference, President and CEO Simone Lagomarsino. Please proceed ma'am. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Thank you, Mike. Good morning to those of you here on the west coast and good afternoon to those of you on the east coast. Thank you for joining the Hawthorne Financial Corporation second quarter 2003 conference call. My name is Simone Lagomarsino and I am the President and Chief Executive Officer of Hawthorne Financial Corporation and Hawthorne Savings. With me is David Rosenthal, our Executive Vice President and Chief Financial Officer. Hopefully everyone had an opportunity to review our press release, highlighting our second quarter results. Before we begin reviewing the quarterly results, I should mention that comments made during this call may contain forward looking statements based on plans, expectations events or trends. Actual results could differ materially from those discussed on this call. The speakers on this call claim the protection of the safe harbor provisions contained in the Securities Litigation Reform Act of 1995. The company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from expected results, we encourage you to review today's earnings release, the company's annual report on form 10-K for 2002, and our other SEC filings. If you've not received a copy of today's earnings release, you may do so now by visiting our web site at www.hawthornesavings.com, click on Investor Relations, then News. Before I respond to questions, I would like to cover a few points from this morning's earnings release and then briefly discuss the Southern California economy. This morning we reported net income for the quarter of $6.9 million, representing a 30.7% increase compared to the $5.3 million net income recorded in the same quarter for 2002 and a 2.5% increase over the prior quarter. We reported earnings per share for the quarter of 83 cents, reflecting an increase of 20%, compared to the 69 cents per share earned in the second quarter of 2002. On a year-to-date basis net income was $13.6 million, for the first six months of 2003, compared to $11.2 million during the same period in 2002 reflecting a 22% increase. Earnings per share for the first 6 months of 2003 totaled $1.64, compared to $1.46 for the same period in 2002 reflecting a 12% increase. During the first half of 2003, our team of talented employees continued to focus on our core business, and the results reflect those efforts. Loan originations reached record levels. Non-interest bearing checking accounts grew 26% on an annualized basis, and total transaction account balances increased 18%. The mix of deposits has improved as well. Transaction accounts represent 39% of total deposits as of June 30th, compared to 38% at year end. During the second quarter, we introduced our courtesy overdraft program and this, along with other new product initiatives, produced an increase in deposit fee income of 2% compared to the prior quarter, and 28% compared to the same period in 2002. During the first half of 2003, we've continued to work to increase the value of our franchise by growing and cross-selling our deposit base. Our efforts in this regard are probably best exhibited by the significant increase in our cross-sell ratio. At March 31, 2003, our cross-sell ratio was 2.46 products per household. And at the end of June, our cross-sell ratio was 2.64 products per household, an annualized increase during the quarter of 29%. During the second quarter of 2003, Hawthorne remained active in the communities that we served, opening two new branches, bringing our total branch network to 15. We remain diligent about improving productivity and efficiency and we continue to make significant progress in this regard. Our strong operating results for the second quarter and first half of 2003 are reflected in our solid performance ratios. Return on average assets for the second quarter of 2003 was 1.08%, reflecting improvement from 1.06% during the first quarter of 2003, and 97 basis points for the fourth quarter of 2002. Return on average equity for the second quarter of 2003 was 16.34%, relatively in line with return on equity for the first quarter and within our target range of 15 to 20%. Next, I'd like to bring you up to date on some of the other significant accomplishments during the quarter, beginning with the discussion of our lending operations. Loan originations remained at record levels. We originated $249 million in new loans during the second quarter, an increase of 5% over the first quarter originations. Loan originations for the first 6 months of 2003 were $485.2 million, reflecting a 45% increase over loan originations for the first half of 2002. Approximately 40% of the loan originations were single family residential loans, 45% were permanent loans for income producing property, the vast majority of which were for multifamily properties, and, finally loans for construction and the purchase of land represented approximately 15% of new loan originations. This represents a more diversified mix of loan originations than in prior years. In terms of the composition of the loan portfolio, approximately 39% of the $2.1 billion loan portfolio at June 30, 2003, is in single family residential loans. Permanent multi-family loans comprised 34% of the portfolio, while other income -- other permanent income producing property loans, including office, industrial and retail comprise 18% of the portfolio, and loans for construction of single family residences, multi-family properties, commercial projects and the financing of land associated with these types of projects comprises 8% of the company's loan portfolio. During the first half of 2003, we've experienced an unprecedented interest rate environment with rates lower than they've been in 50 years, and the 10-year treasury fluctuating down and then up, 100 basis points in the last 90 days. As a result of this environment, we've experienced high levels of prepayments in our loan portfolio. As we indicated in our April conference call, loan prepayments averaged 45% during the first three quarters of 2002 annualized, and then 33% for the fourth quarter of 2002. During the first quarter of 2003, we experienced prepayments at an annualized rate of 35%. Due to the significant drop in the 10 year treasury, prepayment speeds increased to an annualized rate of 38% in the second quarter of 2003. However, it is our expectation that since the 10-year treasury has returned to the 4% level, we will begin to see a slowdown in prepayment fees. We remain very confident in the expertise and capabilities of our loan origination group and we anticipate that this seasoned team will continue to achieve significant increases in the volume of loans originated this year compared to prior years. We have previously provided guidance of net loan portfolio growth of between 5 and 12% for 2003. However, due to the volatile interest rate environment and the significant impact that this has had on our prepayments, we are revising that guidance downward. Therefore, our projected loan portfolio growth for 2003 is between 0% and 5%. We continue to have confidence in the Southern California residential housing market, due in large part to the demand for housing continuing to exceed the supply. As a result of this imbalance and the expectation that it won't be resolved in the near-term, we feel that residential real estate will retain values better than other types of real estate. Currently 79% of our portfolio is secured by either single family or multi-family residential properties. Accordingly, we believe that we remain well positioned to maintain our current strong asset quality levels. Our single family business has not been heavily dependent on refinancing activity. Almost 70% of our loan originations in the single family residential portfolio during the quarter, and 62% for the first half of the year, were in connection with home purchases, not refinancings. Further, virtually all of the loans that we originate are held in our portfolio, and we believe that we are well positioned for the time when the refinancing activity starts to slow. We'll focus now on our retail branch deposit network. There are a number of very exciting things that are going on in our branch system. During the second quarter of 2003, we opened two new branches, one in the Baldwin Hills area of L.A.County and the other in the Irvine Corridor in Orange County. As a result we now have 15 branches. Additionally, during the second quarter, non-interest bearing checking account balances grew at an annualized pace of 15%, and year to date for the first 6 months of 2003, non-interest bearing checking account balances grew at an annualized rate of 26%. Transaction accounts represented 39% of deposits as of June 30th compared to 37% at the end of the first quarter. Since we acquired our Orange County and San Diego branches in August of 2002, we've more than doubled the balances in checking accounts and increased the number of accounts in these branches by 67%. Deposits in these branches have decreased by $28 million, primarily as a result of higher costing certificates of deposit maturing and being moved to other institutions that are paying higher rates. At the end of 2002, the cost of funds in these branches was 98 basis points higher than the cost of funds of our other branches. As of June 30th, we've narrowed that differential to 68 basis points. Our goal is to continue to work to improve the mix of deposits at these branches, building core customers and lowering the overall cost of funds. The Bank's branching check strategy continues to be focused on providing convenience and access for our core customers and specifically targeted areas, where the demographics meet our criteria. Rather than develop a large branch network throughout the four Southern California counties, our branching strategy entails selecting specific targeted markets within the counties, such as the South Bay region of Los Angeles County, North San Diego County, and the Irvine Corridor in Orange County. Our goal is to become the community bank in these markets and to grow our market share to rank us within the top five in each of these regions. This is similar to what we have done in the south bay where we are currently ranked fifth in deposit market share out of 47 institutions. We continue to be focused on cost containment and efficiency. As a result, we've adopted an expansion strategy wherein we will only open 1 or 2 branches in a 12-month period. At Hawthorne we remain deeply committed to the communities that we serve. We continue to be recognized for our high service standards and our commitment to making a difference in our communities. On May 30th of this year, the Los Angeles City Council presented the company with an official declaration commending Hawthorne for its service to the community. We strongly believe that our visibility and commitment to the communities we serve and our strong service standards have been key components to our success in building our loyal base of core deposit customers, which, of course, equates to improved franchise value. Another area in which we've enjoyed considerable success is increasing non-interest revenues. During the second quarter of 2003, non-interest revenues totaled $2.2 million, which reflects an 80% increase over the same period in 2002, and a 40% increase over the first quarter of 2003. Year to date, for the first six months of 2003, non-interest revenues totaled $3.7 million, reflecting a 48% increase over the same period in 2002. For the six months ended June 30, 2003, deposit fee income reflected a 25% increase, compared to the same period in 2002, and loan and other fees reflected a 20% increase compared to the same period in 2002. More than one half of the other fee income of $803,000 for the six months ended June 30th, 2003 is primarily comprised of income from the sale of investment products and the increased value of bank-owned life insurance, which was purchased in April 2003. I will now discuss our net interest income and net interest margin. Net interest income increased 20.7% during the second quarter of 2003, compared to the prior year and was lower than the prior quarter. Net interest margin for the second quarter of 2003 was 3.18% down from 3.44% the prior quarter and 3.56% a year earlier. The reduction in the net interest margin compared to the prior quarter was largely due to a 26 basis point reduction in yields on loans outstanding due to new loans being originated at lower yields from the loans that are prepaying. This is partially offset by a reduction in the company's cost of funds of 11 basis points. The company's cost of funds for the second quarter was 2.71% and the cost of deposits was 2.2%. We continue to work to reduce the cost of funds. During the last half of 2003, we have approximately $448 million in CDs, which represents approximately 25% of our deposit base. These CDs have an average cost of 2.33% currently, which is more than 100 basis points higher than our current six month CD rate. Other initiatives that we've undertaken to reduce the overall cost of funds include repricing a number of our products. For example, one of our money market accounts that had balances of approximately $288 million, had a guaranteed rate through June 30, 2003 of 2%. We've recently decreased the rate offered on this product by 60 basis points. To put this into perspective, the impact of these different initiatives on the overall deposit portfolio, I will outline the cost of funds for several key periods. The average cost of our deposits during the first quarter of 2003 was 2.32%. The average cost of deposits during the second quarter of 2003 was 2.2%. The average cost of deposits during the month of June of 2003 was 2.11%, and the current weighted average interest rate on our deposits today is 2% even. Although we will continue to review and revise the interest rates and seek opportunities to reduce our costs of funds, the initiatives that we've taken to date will have a positive impact on the company's net interest income and net interest margin during the last half of the year. The net interest margin for the first half of the year was 3.31%, compared to 3.68% a year earlier. As a result of the positive initiatives that I just outlined and assuming a slowing of prepayments discussed previously, we reiterate our guidance for the net interest margin of between 3.25% and 3.35% for 2003. Non-interest expense during the second quarter of 2003, was $944,000 lower than for the first quarter of 2003, representing a reduction of 9%. The ratio of general and administrative expenses to average assets was 1.65%, a reduction from 1.69% for the first quarter. During the second quarter of 2003, our efficiency ratio was 46.34%, compared to 47.62% in the first quarter and 50.44% during the fourth quarter of 2002. The efficiency ratio for the first six months of 2003 was 46.99%. Our discipline regarding expense control is evidenced by the reduction in these ratios over the last four years. However, we continue to believe that there is an opportunity for improvement here. Consistent with our previous guidance, our goal is to reduce the efficiency ratio to 45% and G&A to average assets to 1.6% during 2003. Of course, improving the efficiency ratio is directly correlated to maintaining and improving our net interest income and other income in addition to controlling general and administrative expenses. In addition to the positive results that have already been discussed, we continue to be pleased with the performance of our loan portfolio. In addition to focusing on originating quality new loans, we continue to emphasize, reducing the overall risk in our loan portfolio. We've been extremely successful in this regard over the last four years. Our ratio of nonaccrual loans to total loans was 37 basis points as of June 30th, well in line with our peer group. Classified assets totaled $18.6 million, reflecting a reduction of 21.6% since year end. Delinquent loans totaled $13.5 million, relatively in line with delinquencies at the end of the first quarter. During the quarter, we provided $100,000 to loan loss reserves, consistent with the guidance that we provided in April. Again, assuming that asset quality remains at current levels, factoring in anticipated loan growth and based on the current economic indicators, we expect that the provision for credit losses for the remainder of 2003 will be in the range of between $100,000 and $300,000 per quarter. On another topic, in the year 2000, we adopted a stock option program in an effort to further align the interests of our employees with our shareholders. The compensation committee of the board of directors generally reviews this program on a semi-annual basis and may grant options to employees and directors on those occasions in January and July of each year. In January of 2003, no stock options were granted. However, at the board meeting held July 22, 2003, just earlier this week, a total of 72,500 options were granted at the current market price, bringing the total options outstanding to 732,600. Of the options outstanding, 142,000 have been issued to outside directors, 326,000 have been granted to the executive officers, and the remaining 264,600 are distributed among approximately 100 officers of the company. Approximately 28% of our employee base has stock options and I'm pleased to report that since we first granted options under this program our stock price has increased from $8.33 to where it is today at $35.40. Part of why I'm recapping all of this, this morning is that there have been some filings reflecting our recent grants, and I wanted to make sure that everyone understands the context of those grants and the filings. Now we'll conclude with a brief update on our local economy. According to the UCLA Anderson forecast, Los Angeles and its neighbors continue to be the primary source of growth in California. According to their most recent report, population growth in the region has been some of the fastest in the U.S. over the past 5 years, and as a result, new investments in home building and retail spaces remain robust. As a result of the significant population growth, rental prices have increased, and residential home prices have increased sharply as well. The report from UCLA further indicates that despite the current slowdown in the economy, the overall forecast for Los Angeles remains positive. Their forecast is for payroll employment to rise and unemployment to fall to 6.3% by the end of 2004. Trade and services sectors are projected to be the primary leaders and building in the county is expected to remain strong. A few of the sectors in which there have been job losses are manufacturing, the transportation industry and local government. The sectors that are expected to see the largest growth in jobs are retail and wholesale trade, business services, professional services and healthcare. The impact of the state's large deficit remains unknown and the more recent news of the potential recall of our Governor creates even more uncertainty. However, it is clear that both will have a significant impact on state and local government programs and jobs during the next several years. The residential housing market continues to show strength, where chronic shortage of new housing has resulted in significant increases in median home prices notwithstanding the fact that we've had the highest level of new home building in more than a decade. In fact, the twelve trailing months reflect an increase in the median home price in LA County as 16.8% as of June of 2003. As mentioned earlier the imbalance in supply and demand for housing and the projection that this gap may continue to widen due to the forecasted population growth, may provide continued support for housing values. In terms of commercial real estate, the market has remained relatively unchanged. In Los Angeles County, industrial vacancy has increased slightly to 2.9% as of June of 2003, with Orange County up as well to 5% and San Diego unchanged at 7.7%. Average apartment rents in Southern California continue to increase by 4% annually due to the surge of population moving into the area. The vacancy rates in the multi-family market remain stable for the same reasons. Locally, the office market continues to be the weakest real estate market. Los Angeles County's vacancy rates increased slightly to 14.7% as of June of 2003. However, our other two markets have shown signs of improvement, with Orange County's vacancy improving to 15.6%, and San Diego's vacancy improving to 11.9% as of June 2003. On a national level, the news today about jobless claims sinking to a five-month low is possibly an indicator that the economy may bounce back in the second half of the year. Certainly we will be able to gain more confidence that we're in a recovery, if this trend continues and when we start to see other economic indicators pointing in that direction as well. In summary, we believe that we are well-positioned for the current economic environment with approximately 79% of our loans secured by residential property and with our 15 branches located in areas with very strong demographics. We continue to manage the company to build long-term shareholder value. We thank you for taking the time to join us on this conference call today, and on behalf of our employees, management and the board of directors of Hawthorne Financial Corporation I want to thank our shareholders for your continued support. Now Mike we'll be ready to respond to any questions. QUESTION AND ANSWER OPERATOR Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone. If your question has been answered or you wish to withdraw your question, please press star 2. Questions will be taken in the order they are received. Again, that's star 1 to ask a question, and our first question comes from Richard Eckhart with Rock Capital Partners, please proceed. RICHARD ECKHART - ROCK CAPITAL PARTNERS - ANALYST Hi Simone, I had a quick question about nonperforming assets. They appear to have jumped up by 12% after a long period of decline. Were there 1 or 2 particular properties that account for that? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Yes, there was one single family residence for $1.3 million. The loan to value on that is 65%. It's an individual who moved out of state and there is a relocation company that has indicated that they would be buying that property, but that transaction has not happened yet. There have been a few issues. But, I just want to mention, when you look at it in terms of a percentage increase, it looks a lot more significant at somewhere about a million-four. And when we're at the very low levels that we're at, when you think about the fact that there is only 16 loans in total in the $9 million that we have in nonperforming, you know, one loan will have an impact in terms of a percentage, but it really is only one loan that makes up that difference. RICHARD ECKHART - ROCK CAPITAL PARTNERS - ANALYST Okay, thank you. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Thank you. OPERATOR And our next question comes from Mike McMahon with Sandler O'Neill. Please proceed. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Good morning. You have an amazingly high percentage of purchase business, and would I be correct to generally assume that perhaps after one more quarter of high refinance volume as the final rush of refinance applications close, that your loan origination volume would remain relatively robust because it's so much concentrated on purchase business and then at that point, we could perhaps see some decent sequential quarter loan growth, perhaps in '04? Is that a likely scenario? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Yes, let me clarify just for the record, because this is going to go out in a transcript as well. When we talk about a purchase business, the amount of loans that we purchase is relatively low. I want to make sure it's clear that we're talking about making loans to people who are purchasing homes. And, yes, we have an amazingly high level at 70% for this last quarter and 62% for the first half of the year. We do expect that once prepayments slow, we should be able to again start growing our loan portfolio as we have in past years, a big part of what's happened, obviously this year, is the significant prepayments. And we have not seen a huge increase in our new loan originations in our single family portfolio, again, we are a variable rate lender. We will continue to be a variable rate lender and we have a terrific department that really focuses on turning those loans around and being responsive to the customer and providing extreme service, and that's a big part of why they continue to have good, strong originations in really what has been characterized as a fixed rate market. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Okay. And second question, your guidance on the non-interest income being up, you are continuing to say that it will be up, will increase by 10%. Is that more accurate to say that you are projecting it will increase by at least 10%? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Yes. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Okay. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Thank you. Yes, at least 10%. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Great, thank you very much. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Thank you, Mike. OPERATOR And our next question comes from Manuel Ramirez with KBW. Please proceed. MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST Hi, good morning. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Good morning. MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST Couple of questions. First, I was just curious as to whether or not you took some steps to extend out your liabilities this quarter. It looked -- based on your market borrowing costs, it looks like that may have happened. Second, can you talk about your deposit pricing relative to your competitors? I guess what quartile do you think you are in relative to the market? And I have a couple of other questions, but I'll follow-up. Thanks. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Okay. In terms of extending out our liabilities, we do continue to work to extend out our liabilities. I believe our average is now 8.1 months, is that right? DAVID ROSENTHAL - HAWTHORNE FINANCIAL CORPORATION - EVP AND CFO Right. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO 8.1 months and that is up a little bit from where we were at year end. We're continuing to look at other options and obviously as I went through those cost of funds in those different periods of time, you can see that success that we're having in lowering our costs of funds, to literally where they are today at 2%, of deposits, our cost of deposits are 2% today. A significant improvement over where they were in the last quarter and the first half of the year. Your second question was -- MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST Deposit pricing relative to your competitors. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Okay, thank you. We have been working to -- over the last four years, to move from having been four years ago, one of the higher ratepayers, to really being more in line with the moderate ratepayers. And we've made great progress in that regard. The way we look at our pricing, we literally take each week, the analysis of where the higher ratepayers are, where the lowest ratepayers are and compare ourselves against both of those as well as the moderate to make sure we're more in line with the moderate. Having said that, to put it in the form of what quartile we're in, I'm not sure I could do that and be completely accurate, but I'd say we'd be in the moderate not the highest not the lowest. MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST Right, and that moves around from time to time. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Right, the gap between the two move as well. MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST Terrific. Couple other questions. First, usually you give an update on what percentage of your loan portfolio is at interest rate floors -- I didn't see one in the press release this quarter. Do you have that number in front of you? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO It is $1.4 million or approximately 60%. 66%, approximately $1.4 million. MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST Terrific. And one other question. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO $1.4 billion, I'm sorry. MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST I understood what you meant. Just another question on those two branches that you recently opened. About how big do you think those can get? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Well, our average branch size is still over $100 million, and we continue to work to grow our branches, so that we continue to have an average branch size over $100 million. That's our strategy. How long will it take us to get there? It may take some time, but that is our goal, is to continue to operate very efficiently in our branch structure by growing the deposits there -- and the way we do that, we really market within a 3 and 5 mile radius of our branches. One of the marketing efforts that we're going to be doing in the near term is we've done an analysis of the money market rates that the brokerage houses are offering, and our money market rates are significantly better, in large part because they have -- you know -- the fee for the management of that. So, we're going to be going out with a marketing within the next two weeks and doing some very significant calling efforts -- outgoing calling -- to generate some deposits, just because of that differential. MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST Thank you very much, Simone and Dave. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Thank you. OPERATOR And our next question comes from Karl Dorf with Dorf Asset Management. Please proceed, sir. KARL DORF - DORF ASSET MANAGEMENT - ANALYST Good Morning: Did you take any security gains or loan gains in the quarter? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO We took a small amount of security gains during the quarter. I want to say it was about $40,000 in total. David is looking that up as we speak. But it was a relatively small amount. And that would be found in the other non-interest revenue line. KARL DORF DORF ASSET MANAGEMENT - ANALYST What's the amount of unrealized depreciation that you currently have in your security portfolio? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO I'm sorry, could you repeat the question? KARL DORF - DORF ASSET MANAGEMENT - ANALYST Yeah, what is the amount of unrealized depreciation that you currently have in your security portfolio? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO About $2.1 million. KARL DORF - DORF ASSET MANAGEMENT - ANALYST Thank you. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Thank you. OPERATOR And our next question -- SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO I'm sorry, let me just clarify that. That's about $2.4 million as of June 30th. Sorry. Okay. OPERATOR And our next question comes from Don Worthington with Hoefer & Arnett, Inc. Please proceed. DON WORTHINGTON - HOEFER & ARNETT INC. - ANALYST Good morning, Simone SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Good morning, Don. DON WORTHINGTON - HOEFER & ARNETT INC. - ANALYST Couple of quick questions. One, on the net interest margin guidance, does that assume flat rates going forward? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Yes, it does. DON WORTHINGTON - HOEFER & ARNETT INC. - ANALYST Okay. And then maybe to follow on a little bit with the gentlemen's question on the securities portfolio, what type of securities are you buying and what's the average duration of them? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Absolutely. We'll cover that. Again, we have about $348 million in our securities portfolio. About 43% of that is in 5-1 hybrids. Let me mention that we have a very small percent in CMOs. The vast majority of our portfolio is in mortgage-backed securities. Go ahead. DAVID ROSENTHAL - HAWTHORNE FINANCIAL CORPORATION - EVP AND CFO Percentage for CMOs is 14%. And the remainder is in mortgage-backed agency type paper. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO In terms of the effective duration as of June 30th, it was 2.23. The average coupon on that portfolio is 4.54%. Does that cover most of what you're looking for? DON WORTHINGTON - HOEFER & ARNETT INC. - ANALYST That's terrific, thank you. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Great. OPERATOR And our next question comes from Mike McMahon with Sandler O'Neill. Please proceed. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST I forgot to ask - when you were giving the cost of -- and I think you said in a subsequent call, deposits, you were referencing 2.3 in the first quarter, 2.2 in the second quarter, 2.11. Was that cost of deposits? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Cost of deposits. And today our cost of deposits is 2.00%. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Okay. And that, okay... SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO And in part, that was because we had about $288 million that was guaranteed at 2% and we've since lowered that 60 basis points. That helps bring down the cost of deposits today. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Right. And is it -- am I right to assume through all of your discussion about your margin, et cetera, that you are actually looking for a slight increase on a sequential quarterly basis? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Increase in our deposit growth? Is that what you're asking? MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Net interest margin. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO I'm sorry, net interest margin. Yes, the current quarter was 3.18%, and, yes, we would expect a slight increase to get to that 3.25% to 3.35% for the year. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Okay. And then finally -- SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Again, assuming rates remain where they are and prepayments start to slow. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Understood. And then finally, you had a significant decline in personnel expense on a linked quarter basis, and in looking at your guidance for the efficiency ratio, et cetera, am I right to assume that you are expecting a very modest decline in absolute dollar expenses in the second half compared to the first half? SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Yes. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Okay. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Do you want me to elaborate? MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Yes, please do. We've got all day. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Yes, we did have a decline in employee costs, and as everyone knows, we went through an acquisition at the end of last year in August. We have become -- worked to become more and more efficient each quarter, subsequent to that acquisition. We have through attrition been able to have some costs saved on the employee side. Also, there were some agreements that we entered into with some of the key personnel of First Fidelity, the institution that we acquired and there were some expenses therefore associated with those agreements. And those roll off the first half of this year. So we do expect a small decline in our overall G&A on a quarter by quarter basis in the last half of the year. MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST Great. Thank you very much. OPERATOR Once again, if you wish to ask a question, please dial star 1. That's star 1 to ask a question. And we have no further questions at this time. SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO Okay. Well, in conclusion, again, we just thank everyone for participating on the call, and we want to just thank, again, our shareholders for their continued support. Thank you. OPERATOR This concludes your conference call. Thank you for your participation today. You may now disconnect. -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

                                                                    Exhibit 99.1

                                [HAWTHORNE LOGO]


                         HAWTHORNE FINANCIAL CORPORATION
                                  PRESS RELEASE

JULY 24, 2003

IMMEDIATE RELEASE

Contact:  Ms. Simone Lagomarsino, President and Chief Executive Officer
          (310) 725-5631
          Mr. David Rosenthal, Chief Financial Officer
          (310) 725-1890

HAWTHORNE FINANCIAL REPORTS STRONG SECOND QUARTER EARNINGS FOR 2003

(El Segundo, CA) Hawthorne Financial Corporation, (NASDAQ:HTHR), parent company
of Hawthorne Savings, F.S.B., today announced that second quarter 2003 net
income increased 30.7% to $6.9 million, compared to $5.3 million a year earlier.
Diluted earnings per share for the quarter were $0.83, representing an increase
of 20.3%, compared to $0.69 for the second quarter of 2002.

Year-to-date net income for 2003 grew to $13.6 million, an increase of 21.9%,
compared with net income of $11.2 million, for the six months ended June 30,
2002. Net income resulted in diluted earnings per share, for the six months
ended June 30, 2003 of $1.64, a 12.3% increase, compared to the $1.46 earned in
the same period in 2002.

QUARTERLY HIGHLIGHTS

      -     The Company's net income of $6.9 million during the quarter and
            $13.6 million during the six months ended June 30, 2003 is evidence
            of Hawthorne's solid earnings power.

      -     Loan originations increased 56.7% and 45.1% during the three and six
            months ended June 30, 2003, respectively, compared to the same
            periods in 2002, a reflection of the Bank's successful integration
            of its first acquisition.

      -     During the six months ended June 30, 2003, non-interest bearing
            checking account balances increased 25.9% on an annualized basis,
            while annualized deposit growth was 12.3%, an indication of the
            Company's focus on building franchise value.

      -     Deposit fee income increased 25.3% during the six months ended June
            30, 2003, compared to the same period in 2002 as a result of new
            initiatives, including the Bank's new courtesy overdraft program.

      -     The ratio of general and administrative expense ("G&A") (excluding
            other/legal settlement) to average assets improved to 1.65% for the
            six months ended June 30, 2003, compared with 1.84% for the year
            ended December 31, 2002, reflecting the Company's continued emphasis
            on efficiency.

      -     Importantly, asset quality measurements remain at historically
            strong levels.

      -     The Company's positive results were achieved in an environment
            characterized by: unprecedented low and volatile interest rates,
            significant volumes of prepayments of loans, aggressive competition
            for loan originations and a high demand for fixed rate loan
            products. This environment poses challenges relative to growing
            assets that provide acceptable yields.

"Thanks to our superb team of employees, the Bank has gained additional strength
in a challenging environment," said Simone Lagomarsino, the Company's President
and Chief Executive Officer. "More importantly, we will not implement short-term
initiatives, in the current volatile interest rate environment, that will
compromise our underwriting standards or the firm foundation that we have
established. We remain focused on the Company's long-term success," she said.
"Accordingly, we are proactively evaluating strategies to protect against
possible future increases in interest rates, including initiatives that will
reduce our cost of funds in the future. Implementation of these strategies may
result in somewhat slower deposit growth," added Ms. Lagomarsino.



                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 2 OF 11


RETURN ON ASSETS/RETURN ON EQUITY

Key performance measurements for the second quarter were consistent with the
first quarter of 2003. Net income for the three months ended June 30, 2003
resulted in an annualized return on average assets ("ROA") of 1.08%, compared
with a ROA of 1.06% for the first quarter of 2003. The annualized return on
average equity ("ROE") was 16.34% for the three months ended June 30, 2003,
compared with 16.46% for the first quarter of 2003.

NET INTEREST INCOME

Net interest income (after provision for credit losses) of $19.7 million, for
the current quarter, reflected an increase of 20.7% compared to the $16.3
million of net interest income earned in the second quarter of 2002. Net
interest income (after provision for credit losses) earned in the six months
ended June 30, 2003 was $40.9 million reflecting an increase of 22.3% compared
to the same period in 2002. Net interest income was positively impacted
year-over-year by: 1) inclusion of the net assets from the acquisition of First
Fidelity in August 2002, 2) continued strong origination volume of $485.2
million, 3) the majority of ARM loans ($1.4 billion) reaching their contractual
floors and 4) income from the investment securities portfolio.

The Company's net interest income (after provision for credit losses) was $19.7
million for the second quarter of 2003, which was lower than the prior quarter
of $21.1 million. This decrease was primarily due to the Company's yield on
earning assets reducing faster than the Company's cost of funds. This is a
result of the significant prepayments of higher yielding loans and to the fact
that 67.6% of the Company's funding sources have rates that are contractually
fixed.

The average cost of funds for the Company decreased to 2.71% during the second
quarter of 2003, and to 2.76% year-to-date compared to 3.57% and 3.67%, during
the same periods in 2002. The reduction in the cost of funds is the result of
the combination of the continued downward pressure on interest rates, maturing
certificates of deposit with higher than current market rates, and the shift in
the deposit mix. During the last half of 2003, approximately $447.7 million of
CDs are scheduled to mature. The weighted average cost of these CDs is 2.33%
which is approximately 1.00% higher than the current 6 month CD rate. The Bank
believes this represents an opportunity to further lower the overall cost of
deposits by year end.

The Company's net interest margin for the three and six months ended June 30,
2003 was 3.18% and 3.31%, respectively, compared with 3.56% and 3.68% during the
same periods in 2002.

During 2003, both net interest income and net interest margin continued to be
adversely impacted as borrowers refinanced loans, which resulted in $381.8
million in prepayments with a weighted average interest rate of 7.08% for the
six months ended June 30, 2003, while new loan originations had a weighted
average yield of 5.44% during the same period. As a result, the yield on loans
receivable was 6.14% and 6.27% during the three and six months ended June 30,
2003, respectively, compared to 6.40% during the prior quarter and 7.35% and
7.48% during the same periods in 2002.

Ms. Lagomarsino commented, "In light of initiatives that we have implemented to
lower the cost of funds, and assuming a slowing of loan prepayments, we
reiterate the previously announced guidance for 2003 net interest margin of
3.25% to 3.35%."

NONINTEREST REVENUES

Noninterest revenues were $2.2 million for the quarter representing an 80.1%
increase compared to the same period in 2002. For the six months ended June 30,
2003, noninterest revenues were $3.7 million, a 48.3% increase, compared to the
$2.5 million earned during the same period in 2002. Loan and other related fees
constituted 53.2% of noninterest revenues for the six months ended June 30,
2003, compared to 65.8% during the same period in 2002. During both periods,
these fees were comprised primarily of prepayment fees resulting from the high
level of refinancings. Fee income on deposits increased 28.4% during the second
quarter 2003, compared with the same period in 2002, as a result of the growth
in core transaction deposits and other fee generating initiatives.


                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 3 OF 11


The Company continues to expand its customer product array, which includes a new
courtesy overdraft program, designed to enhance customer retention and
satisfaction while increasing income. As a result of the cross selling efforts
by the Company's employees, the ratio of products per household increased to
2.64 at June 30, 2003, compared with 2.46 for the prior quarter.

The Bank reiterates prior guidance that noninterest income will increase by 10%
during 2003 compared to 2002.

NONINTEREST EXPENSE

Total G&A was $10.2 million and $21.4 million for the three and six months ended
June 30, 2003, respectively, compared with $8.3 million and $16.3 million
incurred in the same periods of 2002. "Improving efficiency remains a top
priority and the results reflect our continued success in this regard, evidenced
by the fact that G&A (excluding other/legal settlements) to average assets
decreased to 1.65% for the six months ended June 30, 2003, compared with 1.84%
for the year ended December 31, 2002," commented Ms. Lagomarsino. "In fact, the
Company has been successful in significantly reducing G&A as a percentage of
average assets in each of the last five years," she concluded. The Company's
efficiency ratio was 46.99% for the six months ended June 30, 2003, which was
better than the 47.62% achieved during the first quarter of 2003 and the 48.07%
achieved during the year ended 2002. The Company remains committed to reducing
the efficiency ratio to 45% in 2003 and reducing G&A (excluding other/legal
settlements) to average assets to 1.60%.

LOANS

Loans receivable averaged $2.1 billion during the second quarter of 2003, which
was relatively flat compared to the prior quarter, while reflecting a 28.5%
increase compared to average loans outstanding during the second quarter of
2002. New loan originations were $248.7 million and $485.2 million for the three
and six months ended June 30, 2003, respectively, which represented increases of
56.7% and 45.1%, compared to originations during the same periods in 2002. Ms.
Lagomarsino said, "While loan originations remain at record levels, we are
revising our guidance for loan growth for 2003 down to between flat and 5%, due
to the high level of loan prepayments that we have experienced in the current
volatile rate environment."

DEPOSITS

Total deposits increased to $1.8 billion at June 30, 2003, from $1.7 billion at
December 31, 2002, a 12.3% annualized increase. As of June 30, 2003, the Bank
had 68,505 total retail deposit accounts, 40,240 total households and 22,375
checking accounts, which reflected annualized increases from the year ended
December 31, 2002 of 7.2%, 2.0% and 13.6%, respectively.

The Bank's integration process is on track for the four branches it acquired
last year in Orange and San Diego Counties. As planned, two of the four have
been moved to new locations. The Tustin office was relocated to Irvine Northpark
and the Del Mar office was moved to a more desirable location within Del Mar.
The Orange and San Diego locations remain the same. The goal to increase core
customers in these offices is being realized. From December 31, 2002 to June 30,
2003, the percentage of transaction accounts to total deposits in these four
offices has increased from approximately 23.3% to 25.1%, respectively.

In June, the Company opened two branches, increasing the total number of
branches to fifteen. The Baldwin Hills branch, in Los Angeles County, through a
strategic alliance with Operation HOPE, Inc., offers a full range of services
for the residents of Central Los Angeles. The second full-service retail office
is located in the Irvine Oak Creek corridor of Orange County.

ASSET QUALITY

Management is pleased to report that classified assets remain at historically
low levels. At June 30, 2003, classified assets totaled $18.6 million, or 0.71%
of total Bank assets, compared to $45.1 million, or 2.41% of total Bank assets,
a year earlier. Year-to-date, classified assets have decreased $5.1 million, or
approximately 21.6%. During the second quarter, nonaccrual loans increased by
$1.3 million as a result of the addition of one new loan, however, the





                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 4 OF 11


ratio of nonaccrual loans to total loans of 0.37% remains lower than the Bank's
peer group. At June 30, 2003, the ratio of total allowance for credit losses to
loans receivable, net of specific valuation allowance, was 1.65%, compared with
1.64% at December 31, 2002 and 1.77% at June 30, 2002.

Based on the current assessment of asset quality and economic indicators, the
Bank anticipates that the provision for credit losses for the remainder of the
year will be consistent with the first half of 2003.

STOCK REPURCHASES

During the second quarter of 2003, 20,409 shares were repurchased at an average
price of $32.86. As of June 30, 2003, cumulative repurchases were 1,326,392
shares at an average price of $21.87. Currently, $1.6 million remains available
for additional share repurchases under existing board approved authorizations.

CAPITAL LEVELS

At June 30, 2003, the Bank remained well-capitalized with core, tier 1 and
risk-based capital ratios of 7.56%, 10.91% and 12.17%, respectively. The minimum
ratios for well-capitalized banks are 5%, 6% and 10% for core capital, tier 1
and risk-based capital, respectively.

CONFERENCE CALL

The Company will host a telephone conference call today, July 24, 2003, to
discuss the results of the second quarter and to answer questions of
participants. The call is scheduled to begin at 1:00 p.m. Eastern time (10:00
a.m. Pacific). The teleconference dial in number is (800) 901-5226, reference
"Hawthorne Savings - ID#65205732". Please call at least 10 minutes before the
call is scheduled to begin. Audio access to the conference call will also be
available through a live Webcast over the Internet at www.hawthornesavings.com.
The Webcast of this conference call will be available for replay through August
22, 2003 by accessing the same link.

ABOUT HAWTHORNE SAVINGS

Hawthorne Savings, F.S.B., with total assets of $2.6 billion, operates fifteen
branches in the coastal counties of Southern California, from Westlake Village
at the western edge of Los Angeles to Mission Bay in San Diego. The Company
specializes in real estate secured loans within the markets it serves,
including: 1) permanent loans collateralized by single family residential
property, 2) permanent loans secured by multi-family residential and commercial
real estate and 3) loans for the construction of multi-family residential,
commercial and individual single family residential properties and the
acquisition and development of land for the construction of such projects. The
Company funds its loans predominantly with retail deposits generated through its
fifteen full service retail offices and FHLB advances.

Hawthorne Savings, F.S.B., continues to keep pace with the changing face of
banking by regularly introducing its customers to new products, such as the
Global Access Check Card, online banking and investments. For more information,
please call 888-TRUE-411 or visit the Bank online at www.hawthornesavings.com.

                                    * * * * *

When used in this press release or in future press releases, filings by
Hawthorne Financial Corporation ("Company") with the Securities and Exchange
Commission ("SEC"), or other public or stockholder communications, or in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", "believe" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers that all forward-looking statements are necessarily speculative and not
to place undue reliance on any such forward-looking statements, which speak only
as of the date made. Also, the Company wishes to advise readers that various
risks and uncertainties could affect the Company's financial performance and
cause actual results for future period to differ materially from those
anticipated or projected. Specifically, the Company cautions readers that
important factors could affect the Company's business and cause


                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 5 OF 11


actual results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company, including: general economic
conditions in its market area, particularly changes in economic conditions in
the real estate industry or real estate values in our market, changes in market
interest rates, loan prepayments increasing or continuing at the current pace,
risk associated with credit quality, outcome of pending litigation, inherent
market risk associated with treasury activities, the Company's ability to
successfully implement new strategic initiatives and other risks with respect to
its business and/or financial results detailed in the Company's press releases
and filings with the SEC. Stockholders are urged to review the risks described
in such releases and filings. The risks highlighted herein should not be assumed
to be the only factors that could affect future performance of the Company. The
Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.




                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 6 OF 11

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in thousands)



                                                                              JUNE 30,        DECEMBER 31,
                                                                                2003             2002
                                                                            -----------       -----------
                                                                                        
Assets:
    Cash and cash equivalents                                               $    16,415       $    21,849
    Investment securities available-for-sale, at fair value                     348,154           267,596
    Loans receivable (net of allowance for credit losses
      of $35,341 in 2003 and $35,309 in 2002)                                 2,103,105         2,114,255
    Accrued interest receivable                                                  10,883            11,512
    Investment in capital stock of Federal Home Loan Bank, at cost               33,238            34,705
    Office property and equipment at cost, net                                    5,722             5,106
    Deferred tax asset, net                                                       8,521            10,068
    Goodwill                                                                     22,970            22,970
    Intangible assets                                                             1,183             1,388
    Investment securities awaiting settlement                                    30,354                --
    Other assets                                                                 32,743             5,521
                                                                            -----------       -----------
          Total assets                                                      $ 2,613,288       $ 2,494,970
                                                                            ===========       ===========
Liabilities and Stockholders' Equity:
    Liabilities:
      Deposits:
        Noninterest-bearing                                                 $    44,970       $    39,818
        Interest-bearing:
          Transaction accounts                                                  649,037           597,528
          Certificates of deposit                                             1,070,722         1,025,464
                                                                            -----------       -----------
             Total deposits                                                   1,764,729         1,662,810
      FHLB advances                                                             576,736           600,190
      Capital securities                                                         51,000            51,000
      Investment securities awaiting settlement                                  30,354                --
      Accounts payable and other liabilities                                     17,184            17,904
                                                                            -----------       -----------
          Total liabilities                                                   2,440,003         2,331,904
                                                                            -----------       -----------


Stockholders' Equity:
    Common stock -- $0.01 par value; authorized 20,000,000
      shares; issued, 9,015,102 shares (2003) and
      8,576,048 shares (2002)                                                        90                86
    Capital in excess of par value-- common stock                                82,027            81,087
    Retained earnings                                                           118,774           105,134
    Accumulated other comprehensive income                                        1,374             1,504
    Less:
          Treasury stock, at cost-- 1,331,792 shares (2003)
             and 1,188,383 shares (2002)                                        (28,980)          (24,745)
                                                                            -----------       -----------
          Total stockholders' equity                                            173,285           163,066
                                                                            -----------       -----------
          Total liabilities and stockholders' equity                        $ 2,613,288       $ 2,494,970
                                                                            ===========       ===========




                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 7 OF 11

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)



                                                                          THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                                JUNE 30,                         JUNE 30,
                                                                       ---------------------------      ---------------------------
                                                                          2003             2002            2003             2002
                                                                       ----------       ----------      ----------       ----------
                                                                                                             
Interest revenues:
  Loans                                                                $   32,627       $   30,385      $   66,800       $   62,893
  Investments securities                                                    2,603               69           5,555               69
  Investment in capital stock of FHLB, fed funds and other                    331            1,089             795            1,950
                                                                       ----------       ----------      ----------       ----------
        Total interest revenues                                            35,561           31,543          73,150           64,912
                                                                       ----------       ----------      ----------       ----------
Interest costs:
  Deposits                                                                  9,403            8,493          18,972           18,027
  FHLB advances                                                             5,584            5,141          11,397           10,293
  Senior notes                                                                 --              805              --            1,611
  Capital securities                                                          755              599           1,528              903
                                                                       ----------       ----------      ----------       ----------
        Total interest costs                                               15,742           15,038          31,897           30,834
                                                                       ----------       ----------      ----------       ----------
Net interest income                                                        19,819           16,505          41,253           34,078
Provision for credit losses                                                   100              170             400              670
                                                                       ----------       ----------      ----------       ----------
        Net interest income after provision for credit losses              19,719           16,335          40,853           33,408
Noninterest revenues:
   Loan related and other fees                                              1,078              790           1,964            1,638
   Deposit fees                                                               466              363             922              736
   Other                                                                      608               42             803              114
                                                                       ----------       ----------      ----------       ----------
         Total noninterest revenues                                         2,152            1,195           3,689            2,488
Income from real estate operations, net                                        (4)              --              (3)              69
Noninterest expenses:
  General and administrative expense:
      Employee                                                              5,475            4,700          11,665            9,732
      Operating                                                             2,278            1,516           4,679            3,019
      Occupancy                                                             1,390              941           2,576            1,855
      Professional                                                            339              599             786              706
      Technology                                                              535              371           1,084              740
      SAIF premiums and OTS assessments                                       165              132             330              268
      Other/legal settlements                                                  38               --             264               20
                                                                       ----------       ----------      ----------       ----------
         Total general and administrative expense                          10,220            8,259          21,384           16,340
                                                                       ----------       ----------      ----------       ----------
Income before income taxes                                                 11,647            9,271          23,155           19,625
Income tax provision                                                        4,743            3,987           9,515            8,439
                                                                       ----------       ----------      ----------       ----------
Net income                                                             $    6,904       $    5,284      $   13,640       $   11,186
                                                                       ==========       ==========      ==========       ==========
Basic earnings per share                                               $     0.90       $     0.91      $     1.79       $     2.00
                                                                       ==========       ==========      ==========       ==========
Diluted earnings per share                                             $     0.83       $     0.69      $     1.64       $     1.46
                                                                       ==========       ==========      ==========       ==========
Weighted average basic shares outstanding                                   7,690            5,821           7,633            5,597
                                                                       ==========       ==========      ==========       ==========
Weighted average diluted shares outstanding                                 8,322            7,665           8,331            7,646
                                                                       ==========       ==========      ==========       ==========




                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 8 OF 11

SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS (UNAUDITED)
(Dollars in thousands)



                                                                                  JUNE 30,        DECEMBER 31,      JUNE 30,
                                                                                    2003             2002             2002
                                                                                 ----------       ----------       ----------
                                                                                                          
Risk elements:
    Nonaccrual loans                                                             $    9,649       $    7,675       $    6,081
    Real estate owned, net                                                               --               --               --
                                                                                 ----------       ----------       ----------

                                                                                      9,649            7,675            6,081

   Performing loans classified substandard or lower (1)                               8,904           16,002           38,984
                                                                                 ----------       ----------       ----------

         Total classified assets                                                 $   18,553       $   23,677       $   45,065
                                                                                 ==========       ==========       ==========

         Total classified loans                                                  $   18,553       $   23,677       $   45,065
                                                                                 ==========       ==========       ==========

Loans restructured and paying in accordance with modified terms (2)              $    2,351       $    2,468       $    2,317
                                                                                 ==========       ==========       ==========

Gross loans before allowance for credit losses                                   $2,138,446       $2,149,564       $1,620,857
                                                                                 ==========       ==========       ==========

Loans receivable, net of specific valuation allowance                            $2,138,070       $2,149,376       $1,619,807
                                                                                 ==========       ==========       ==========

Delinquent loans:
    30 - 89 days                                                                 $    6,469       $    5,357       $    9,920
    90+ days                                                                          6,989            7,175            1,931
                                                                                 ----------       ----------       ----------

        Total delinquent loans                                                   $   13,458       $   12,532       $   11,851
                                                                                 ==========       ==========       ==========

Allowance for credit losses:
    General valuation allowance ("GVA")                                          $   34,965       $   35,121       $   27,607
    Specific valuation allowance ("SVA")                                                376              188            1,050
                                                                                 ----------       ----------       ----------

        Total allowance for credit losses                                        $   35,341       $   35,309       $   28,657
                                                                                 ==========       ==========       ==========

Net loan charge-offs:
    Net charge-offs for the quarter ended (3)                                    $      265       $      664       $      189
    Percent to loans receivable, net of SVA (annualized)                               0.05%            0.12%            0.05%
    Percent to beginning of period allowance for credit losses (annualized)            2.99%            7.40%            2.64%
Selected asset quality ratios at period end:

   Total nonaccrual loans to total assets                                              0.37%            0.31%            0.32%
   Total allowance for credit losses to loans receivable, net of SVA                   1.65%            1.64%            1.77%
   Total GVA to loans receivable, net of SVA                                           1.64%            1.63%            1.70%
   Total allowance for credit losses to nonaccrual loans                             366.27%          460.05%          471.25%
   Total classified assets to Bank core capital and GVA                                8.05%           10.81%           23.04%


- -------------------------------------
(1)     Excludes nonaccrual loans.
(2)     Troubled debt restructured loans not classified and not on nonaccrual.
(3)     During the course of the year, charge-offs are anticipated and generally
        reflected as specific valuation allowances.




                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 9 OF 11

NET INTEREST INCOME (UNAUDITED)
(Dollars in thousands)



                                                                                  THREE MONTHS ENDED JUNE 30,
                                                          -------------------------------------------------------------------------
                                                                        2003                                   2002
                                                          -----------------------------------   -----------------------------------
                                                                                    WEIGHTED                             WEIGHTED
                                                            AVERAGE     REVENUES/   AVERAGE      AVERAGE      REVENUES/   AVERAGE
                                                            BALANCE       COSTS    YIELD/COST    BALANCE       COSTS     YIELD/COST
                                                          -----------   ---------  ----------   -----------   ---------  ----------
                                                                                                       
Assets:
Interest-earning assets:
    Loans receivable (1)                                  $ 2,126,756   $ 32,627      6.14 %    $ 1,654,830   $ 30,385      7.35 %
    Investment securities                                     331,474      2,603      3.14            8,722         69      3.17
    Investment in capital stock of
       Federal Home Loan Bank                                  33,792        321      3.81           25,001        382      6.13
    Cash, fed funds and other                                   2,169         10      1.85          169,220        707      1.68
                                                          -----------   ---------               -----------   ---------
            Total interest-earning assets                   2,494,191     35,561      5.71        1,857,773     31,543      6.80
                                                                        ---------  --------                   ---------  --------
Noninterest-earning assets                                     69,247                                 3,846
                                                          -----------                           -----------
            Total assets                                  $ 2,563,438                           $ 1,861,619
                                                          ===========                           ===========

Liabilities and Stockholders' Equity:
    Interest-bearing liabilities:
       Deposits                                           $ 1,718,063   $  9,403      2.20 %    $ 1,151,892   $  8,493      2.96 %
       FHLB advances                                          549,508      5,584      4.02          468,615      5,141      4.34
       Senior notes                                                 -          -         -           25,778        805     12.50
       Capital securities                                      51,000        755      5.92           33,824        599      7.08
                                                          -----------   ---------               -----------   ---------
            Total interest-bearing liabilities              2,318,571     15,742      2.71        1,680,109     15,038      3.57
                                                                        ---------  --------                   ---------  --------

    Noninterest-bearing checking                               44,596                                37,130
    Noninterest-bearing liabilities                            31,236                                20,258
    Stockholders' equity                                      169,035                               124,122
                                                          -----------                           -----------
            Total liabilities and stockholders' equity    $ 2,563,438                           $ 1,861,619
                                                          ===========                           ===========

Net interest income                                                     $ 19,819                              $ 16,505
                                                                        =========                             =========
Interest rate spread                                                                  3.00 %                                3.23 %
                                                                                   ==========                            ==========
Net interest margin                                                                   3.18 %                                3.56 %
                                                                                   ==========                            ==========



- -------------------------------------

(1)     Includes the interest on nonaccrual loans only to the extent it was paid
        and recognized as interest income.



                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 10 OF 11

NET INTEREST INCOME (UNAUDITED)
(Dollars in thousands)



                                                                                 SIX MONTHS ENDED JUNE 30,
                                                          --------------------------------------------------------------------------
                                                                         2003                                   2002
                                                          -----------------------------------   ------------------------------------
                                                                                    WEIGHTED                               WEIGHTED
                                                             AVERAGE    REVENUES/   AVERAGE        AVERAGE     REVENUES/   AVERAGE
                                                             BALANCE      COSTS    YIELD/COST      BALANCE       COSTS    YIELD/COST
                                                          -----------   ---------  ----------   ------------   ---------  ----------
                                                                                                        
Assets:
Interest-earning assets:
    Loans receivable (1)                                  $ 2,135,362   $ 66,800       6.27 %   $ 1,686,078    $ 62,893    7.48 %
    Investment securities                                     324,270      5,555       3.43           4,385          69    3.17
    Investment in capital stock of
       Federal Home Loan Bank                                  34,323        767       4.51          24,805         756    6.15
    Cash, fed funds and other                                   4,046         28       1.40         144,078       1,194    1.67
                                                          -----------   ---------               ------------   ---------
            Total interest-earning assets                   2,498,001     73,150       5.87       1,859,346      64,912    7.00
                                                                        ---------  ---------                   ---------  ------
Noninterest-earning assets                                     60,362                                 2,438
                                                          -----------                           ------------
            Total assets                                  $ 2,558,363                           $ 1,861,784
                                                          ===========                           ============

Liabilities and Stockholders' Equity:
    Interest-bearing liabilities:
       Deposits                                           $ 1,696,931   $ 18,972       2.25 %   $ 1,156,907    $ 18,027    3.14 %
       FHLB advances                                          566,329     11,397       4.00         476,265      10,293    4.30
       Senior notes                                                 -          -          -          25,778       1,611   12.50
       Capital securities                                      51,000      1,528       5.99          23,967         903    7.54
                                                          -----------   ---------               ------------   ---------
            Total interest-bearing liabilities              2,314,260     31,897       2.76       1,682,917      30,834    3.67
                                                                        ---------  ---------                   ---------  ------

    Noninterest-bearing checking                               42,959                                36,546
    Noninterest-bearing liabilities                            34,775                                19,864
    Stockholders' equity                                      166,369                               122,457
                                                          -----------                           ------------
            Total liabilities and stockholders' equity    $ 2,558,363                           $ 1,861,784
                                                          ===========                           ============

Net interest income                                                     $ 41,253                               $ 34,078
                                                                        =========                              =========
Interest rate spread                                                                   3.11 %                              3.33 %
                                                                                   ==========                             =========
Net interest margin                                                                    3.31 %                              3.68 %
                                                                                   ==========                             =========


- -------------------------------------

(1)     Includes the interest on nonaccrual loans only to the extent it was paid
        and recognized as interest income.


                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2003 RESULTS
JULY 24, 2003
PAGE 11 OF 11


NET LOAN PORTFOLIO COMPOSITION (UNAUDITED)
(Dollars in thousands)



                                                      JUNE 30, 2003                DECEMBER 31, 2002
                                                -------------------------      ------------------------
                                                   BALANCE       PERCENT          BALANCE      PERCENT
                                                ------------    ---------      ------------    --------
                                                                                   
Single family residential                       $   836,421       39.33%       $   851,268      39.81%
Income property:
   Multi-family                                     731,983       34.42%           689,100      32.22%
   Commercial                                       381,423       17.93%           387,354      18.11%
   Development:
       Multi-family                                  47,381        2.23%            57,037       2.67%
       Commercial                                    25,972        1.22%            41,168       1.93%
Single family construction:
   Single family residential                         73,217        3.44%            75,218       3.52%
Land                                                 26,659        1.25%            32,612       1.52%
Other                                                 3,826        0.18%             4,738       0.22%
                                                ------------    ---------      ------------    --------
          Total loan principal (1)              $ 2,126,882      100.00%       $ 2,138,495     100.00%
                                                ============    =========      ============    ========


- -------------------------------------
(1)     Excludes net deferred fees and costs.



SELECTED FINANCIAL DATA (UNAUDITED) (1)             THREE MONTHS ENDED           SIX MONTHS ENDED
(Dollars in thousands)                                    JUNE 30,                    JUNE 30,
                                                   --------------------     --------------------------
                                                    2003         2002          2003           2002
                                                   -------      -------     ----------      ----------
                                                                                
PERFORMANCE RATIOS
Return on average assets (2)                        1.08%        1.14%          1.07%           1.20%
Return on average equity (2)                       16.34%       17.03%         16.40%          18.27%
Efficiency ratio (3)                               46.34%       46.66%         46.99%          44.63%
G&A to average assets (4)                                                       1.65%           1.75%

GROWTH RATIOS (2)
Total assets                                                                    9.48%           1.95%
Loans receivable, net                                                          -1.05%         -13.70%
Total deposits                                                                 12.26%          -1.29%




                                                                             JUNE 30,       JUNE 30,
                                                                               2003           2002
                                                                            ----------      ----------
                                                                                      
BANK CAPITAL RATIOS
Core capital                                                                $ 195,449       $ 167,964
Ratio                                                                           7.56%           8.98%
Tier 1 capital                                                              $ 195,449       $ 167,964
Ratio                                                                          10.91%          13.23%
Risk-based capital                                                          $ 218,004       $ 183,990
Ratio                                                                          12.17%          14.49%


- -------------------------------------
(1)     All ratios were calculated based on net income.
(2)     Annualized.
(3)     Represents total general and administrative expense (excluding
        other/legal settlements) divided by net interest income before provision
        for credit losses and noninterest revenues.
(4)     Represents annualized total general and administrative expense
        (excluding other/legal settlements) divided by average assets.

EX-99.2

                                                                    EXHIBIT 99.2
OPERATOR

Good day ladies and gentlemen and welcome to the Hawthorne Financial Corporation
second quarter earnings call. At this time, all participants are in a
listen-only mode. My name is Mike. And I will be your conference coordinator
today. If at any time during the call you require assistance please press star
followed by a 0 and a conference coordinator will be happy to assist you. As a
reminder this conference is being recorded. I would now like to turn the program
over to your host for today's conference, President and CEO Simone Lagomarsino.
Please proceed ma'am.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Thank you, Mike. Good morning to those of you here on the west coast and good
afternoon to those of you on the east coast. Thank you for joining the Hawthorne
Financial Corporation second quarter 2003 conference call. My name is Simone
Lagomarsino and I am the President and Chief Executive Officer of Hawthorne
Financial Corporation and Hawthorne Savings. With me is David Rosenthal, our
Executive Vice President and Chief Financial Officer.

Hopefully everyone had an opportunity to review our press release, highlighting
our second quarter results. Before we begin reviewing the quarterly results, I
should mention that comments made during this call may contain forward looking
statements based on plans, expectations events or trends. Actual results could
differ materially from those discussed on this call. The speakers on this call
claim the protection of the safe harbor provisions contained in the Securities
Litigation Reform Act of 1995. The company undertakes no obligation to publicly
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise. For a more complete discussion of the
risks and uncertainties that may cause actual results to differ materially from
expected results, we encourage you to review today's earnings release, the
company's annual report on form 10-K for 2002, and our other SEC filings. If
you've not received a copy of today's earnings release, you may do so now by
visiting our web site at www.hawthornesavings.com, click on Investor Relations,
then News.

Before I respond to questions, I would like to cover a few points from this
morning's earnings release and then briefly discuss the Southern California
economy.

This morning we reported net income for the quarter of $6.9 million,
representing a 30.7% increase compared to the $5.3 million net income recorded
in the same quarter for 2002 and a 2.5% increase over the prior quarter. We
reported earnings per share for the quarter of 83 cents, reflecting an increase
of 20%, compared to the 69 cents per share earned in the second quarter of 2002.
On a year-to-date basis net income was $13.6 million, for the first six months
of 2003, compared to $11.2 million during the same period in 2002 reflecting a
22% increase. Earnings per share for the first 6 months of 2003 totaled $1.64,
compared to $1.46 for the same period in 2002 reflecting a 12% increase.

During the first half of 2003, our team of talented employees continued to focus
on our core business, and the results reflect those efforts. Loan originations
reached record levels. Non-interest bearing checking accounts grew 26% on an
annualized basis, and total transaction account balances increased 18%. The mix
of deposits has improved as well. Transaction accounts represent 39% of total
deposits as of June 30th, compared to 38% at year end. During the second
quarter, we introduced our courtesy overdraft program and this, along with other
new product initiatives, produced an increase in deposit fee income of 2%
compared to the prior quarter, and 28% compared to the same period in 2002.
During the first half of 2003, we've continued to work to increase the value of
our franchise by growing and cross-selling our deposit base. Our efforts in this
regard are probably best exhibited by the significant increase in our cross-sell
ratio. At March 31, 2003, our cross-sell ratio was 2.46 products per household.
And at the end of June, our cross-sell ratio was 2.64 products per household, an
annualized increase during the quarter of 29%.

During the second quarter of 2003, Hawthorne remained active in the communities
that we served, opening two new branches, bringing our total branch network to
15. We remain diligent about improving productivity and efficiency and we
continue to make significant progress in this regard.

Our strong operating results for the second quarter and first half of 2003 are
reflected in our solid performance ratios. Return on average assets for the
second quarter of 2003 was 1.08%, reflecting improvement from 1.06% during the
first quarter of 2003, and 97 basis points for the fourth quarter of 2002.

Return on average equity for the second quarter of 2003 was 16.34%, relatively
in line with return on equity for the first quarter and within our target range
of 15 to 20%.

Next, I'd like to bring you up to date on some of the other significant
accomplishments during the quarter, beginning with the discussion of our lending
operations. Loan originations remained at record levels. We originated $249
million in new loans during the second quarter, an increase of 5% over the first
quarter originations. Loan originations for the first 6 months of 2003 were
$485.2 million, reflecting a 45% increase over loan

originations for the first half of 2002. Approximately 40% of the loan
originations were single family residential loans, 45% were permanent loans for
income producing property, the vast majority of which were for multifamily
properties, and, finally loans for construction and the purchase of land
represented approximately 15% of new loan originations. This represents a more
diversified mix of loan originations than in prior years.

In terms of the composition of the loan portfolio, approximately 39% of the $2.1
billion loan portfolio at June 30, 2003, is in single family residential
loans. Permanent multi-family loans comprised 34% of the portfolio, while other
income -- other permanent income producing property loans, including office,
industrial and retail comprise 18% of the portfolio, and loans for construction
of single family residences, multi-family properties, commercial projects and
the financing of land associated with these types of projects comprises 8% of
the company's loan portfolio.

During the first half of 2003, we've experienced an unprecedented interest rate
environment with rates lower than they've been in 50 years, and the 10-year
treasury fluctuating down and then up, 100 basis points in the last 90 days. As
a result of this environment, we've experienced high levels of prepayments in
our loan portfolio. As we indicated in our April conference call, loan
prepayments averaged 45% during the first three quarters of 2002 annualized, and
then 33% for the fourth quarter of 2002. During the first quarter of 2003, we
experienced prepayments at an annualized rate of 35%. Due to the significant
drop in the 10 year treasury, prepayment speeds increased to an annualized rate
of 38% in the second quarter of 2003. However, it is our expectation that since
the 10-year treasury has returned to the 4% level, we will begin to see a
slowdown in prepayment fees. We remain very confident in the expertise and
capabilities of our loan origination group and we anticipate that this seasoned
team will continue to achieve significant increases in the volume of loans
originated this year compared to prior years. We have previously provided
guidance of net loan portfolio growth of between 5 and 12% for 2003. However,
due to the volatile interest rate environment and the significant impact that
this has had on our prepayments, we are revising that guidance downward.
Therefore, our projected loan portfolio growth for 2003 is between 0% and 5%.

We continue to have confidence in the Southern California residential housing
market, due in large part to the demand for housing continuing to exceed the
supply. As a result of this imbalance and the expectation that it won't be
resolved in the near-term, we feel that residential real estate will retain
values better than other types of real estate. Currently 79% of our portfolio is
secured by either single family or multi-family residential properties.
Accordingly, we believe that we remain well positioned to maintain our current
strong asset quality levels.

Our single family business has not been heavily dependent on refinancing
activity. Almost 70% of our loan originations in the single family residential
portfolio during the quarter, and 62% for the first half of the year, were in
connection with home purchases, not refinancings. Further, virtually all of the
loans that we originate are held in our portfolio, and we believe that we are
well positioned for the time when the refinancing activity starts to slow.

We'll focus now on our retail branch deposit network. There are a number of very
exciting things that are going on in our branch system. During the second
quarter of 2003, we opened two new branches, one in the Baldwin Hills area of
L.A.County and the other in the Irvine Corridor in Orange County.

As a result we now have 15 branches. Additionally, during the second quarter,
non-interest bearing checking account balances grew at an annualized pace of
15%, and year to date for the first 6 months of 2003, non-interest bearing
checking account balances grew at an annualized rate of 26%. Transaction
accounts represented 39% of deposits as of June 30th compared to 37% at the end
of the first quarter.

Since we acquired our Orange County and San Diego branches in August of 2002,
we've more than doubled the balances in checking accounts and increased the
number of accounts in these branches by 67%. Deposits in these branches have
decreased by $28 million, primarily as a result of higher costing certificates
of deposit maturing and being moved to other institutions that are paying higher
rates. At the end of 2002, the cost of funds in these branches was 98 basis
points higher than the cost of funds of our other branches. As of June 30th,
we've narrowed that differential to 68 basis points. Our goal is to continue to
work to improve the mix of deposits at these branches, building core customers
and lowering the overall cost of funds.

The Bank's branching check strategy continues to be focused on providing
convenience and access for our core customers and specifically targeted areas,
where the demographics meet our criteria. Rather than develop a large branch
network throughout the four Southern California counties, our branching strategy
entails selecting specific targeted markets within the counties, such as the
South Bay region of Los Angeles County, North San Diego County, and the Irvine
Corridor in Orange County. Our goal is to become the community bank in these
markets and to grow our market share to rank us within the top five in each of
these regions. This is similar to what we have done in the south bay where we
are currently ranked fifth in deposit market share out of 47 institutions. We
continue to be focused on cost containment and efficiency. As a result, we've
adopted an expansion strategy wherein we will only open 1 or 2 branches in a
12-month period.

At Hawthorne we remain deeply committed to the communities that we serve. We
continue to be recognized for our high service standards and our commitment to
making a difference in our communities. On May 30th of this year, the Los
Angeles City Council presented the company with an official declaration
commending Hawthorne for its service to the community. We strongly believe that
our visibility and commitment to the

communities we serve and our strong service standards have been key components
to our success in building our loyal base of core deposit customers, which, of
course, equates to improved franchise value.

Another area in which we've enjoyed considerable success is increasing
non-interest revenues. During the second quarter of 2003, non-interest revenues
totaled $2.2 million, which reflects an 80% increase over the same period in
2002, and a 40% increase over the first quarter of 2003. Year to date, for the
first six months of 2003, non-interest revenues totaled $3.7 million, reflecting
a 48% increase over the same period in 2002. For the six months ended June 30,
2003, deposit fee income reflected a 25% increase, compared to the same period
in 2002, and loan and other fees reflected a 20% increase compared to the same
period in 2002. More than one half of the other fee income of $803,000 for the
six months ended June 30th, 2003 is primarily comprised of income from the sale
of investment products and the increased value of bank-owned life insurance,
which was purchased in April 2003.

I will now discuss our net interest income and net interest margin. Net interest
income increased 20.7% during the second quarter of 2003, compared to the prior
year and was lower than the prior quarter. Net interest margin for the second
quarter of 2003 was 3.18% down from 3.44% the prior quarter and 3.56% a year
earlier. The reduction in the net interest margin compared to the prior quarter
was largely due to a 26 basis point reduction in yields on loans outstanding due
to new loans being originated at lower yields from the loans that are prepaying.
This is partially offset by a reduction in the company's cost of funds of 11
basis points.

The company's cost of funds for the second quarter was 2.71% and the cost of
deposits was 2.2%. We continue to work to reduce the cost of funds. During the
last half of 2003, we have approximately $448 million in CDs, which represents
approximately 25% of our deposit base. These CDs have an average cost of 2.33%
currently, which is more than 100 basis points higher than our current six month
CD rate.

Other initiatives that we've undertaken to reduce the overall cost of funds
include repricing a number of our products. For example, one of our money market
accounts that had balances of approximately $288 million, had a guaranteed rate
through June 30, 2003 of 2%. We've recently decreased the rate offered on this
product by 60 basis points. To put this into perspective, the impact of these
different initiatives on the overall deposit portfolio, I will outline the cost
of funds for several key periods. The average cost of our deposits during the
first quarter of 2003 was 2.32%. The average cost of deposits during the second
quarter of 2003 was 2.2%. The average cost of deposits during the month of June
of 2003 was 2.11%, and the current weighted average interest rate on our
deposits today is 2% even. Although we will continue to review and revise the
interest rates and seek opportunities to reduce our costs of funds, the
initiatives that we've taken to date will have a positive impact on the
company's net interest income and net interest margin during the last half of
the year.

The net interest margin for the first half of the year was 3.31%, compared to
3.68% a year earlier. As a result of the positive initiatives that I just
outlined and assuming a slowing of prepayments discussed previously, we
reiterate our guidance for the net interest margin of between 3.25% and 3.35%
for 2003.

Non-interest expense during the second quarter of 2003, was $944,000 lower than
for the first quarter of 2003, representing a reduction of 9%. The ratio of
general and administrative expenses to average assets was 1.65%, a reduction
from 1.69% for the first quarter. During the second quarter of 2003, our
efficiency ratio was 46.34%, compared to 47.62% in the first quarter and 50.44%
during the fourth quarter of 2002.

The efficiency ratio for the first six months of 2003 was 46.99%. Our discipline
regarding expense control is evidenced by the reduction in these ratios over the
last four years. However, we continue to believe that there is an opportunity
for improvement here. Consistent with our previous guidance, our goal is to
reduce the efficiency ratio to 45% and G&A to average assets to 1.6% during
2003. Of course, improving the efficiency ratio is directly correlated to
maintaining and improving our net interest income and other income in addition
to controlling general and administrative expenses.

In addition to the positive results that have already been discussed, we
continue to be pleased with the performance of our loan portfolio. In addition
to focusing on originating quality new loans, we continue to emphasize, reducing
the overall risk in our loan portfolio. We've been extremely successful in this
regard over the last four years. Our ratio of nonaccrual loans to total loans
was 37 basis points as of June 30th, well in line with our peer group.
Classified assets totaled $18.6 million, reflecting a reduction of 21.6% since
year end. Delinquent loans totaled $13.5 million, relatively in line with
delinquencies at the end of the first quarter. During the quarter, we provided
$100,000 to loan loss reserves, consistent with the guidance that we provided in
April. Again, assuming that asset quality remains at current levels, factoring
in anticipated loan growth and based on the current economic indicators, we
expect that the provision for credit losses for the remainder of 2003 will be in
the range of between $100,000 and $300,000 per quarter.

On another topic, in the year 2000, we adopted a stock option program in an
effort to further align the interests of our employees with our shareholders.
The compensation committee of the board of directors generally reviews this
program on a semi-annual basis and may grant options to employees and directors
on those occasions in January and July of each year. In January of 2003, no
stock options were granted. However, at the board meeting held July 22, 2003,
just earlier this week, a total of 72,500 options were granted at the current
market price, bringing the total options outstanding to 732,600. Of the options
outstanding, 142,000 have been issued to outside directors, 326,000 have been

granted to the executive officers, and the remaining 264,600 are distributed
among approximately 100 officers of the company. Approximately 28% of our
employee base has stock options and I'm pleased to report that since we first
granted options under this program our stock price has increased from $8.33 to
where it is today at $35.40. Part of why I'm recapping all of this, this morning
is that there have been some filings reflecting our recent grants, and I wanted
to make sure that everyone understands the context of those grants and the
filings.

Now we'll conclude with a brief update on our local economy. According to the
UCLA Anderson forecast, Los Angeles and its neighbors continue to be the primary
source of growth in California. According to their most recent report,
population growth in the region has been some of the fastest in the U.S. over
the past 5 years, and as a result, new investments in home building and retail
spaces remain robust. As a result of the significant population growth, rental
prices have increased, and residential home prices have increased sharply as
well. The report from UCLA further indicates that despite the current slowdown
in the economy, the overall forecast for Los Angeles remains positive. Their
forecast is for payroll employment to rise and unemployment to fall to 6.3% by
the end of 2004. Trade and services sectors are projected to be the primary
leaders and building in the county is expected to remain strong. A few of the
sectors in which there have been job losses are manufacturing, the
transportation industry and local government. The sectors that are expected to
see the largest growth in jobs are retail and wholesale trade, business
services, professional services and healthcare.

The impact of the state's large deficit remains unknown and the more recent news
of the potential recall of our Governor creates even more uncertainty. However,
it is clear that both will have a significant impact on state and local
government programs and jobs during the next several years.

The residential housing market continues to show strength, where chronic
shortage of new housing has resulted in significant increases in median home
prices notwithstanding the fact that we've had the highest level of new home
building in more than a decade. In fact, the twelve trailing months reflect an
increase in the median home price in LA County as 16.8% as of June of 2003. As
mentioned earlier the imbalance in supply and demand for housing and the
projection that this gap may continue to widen due to the forecasted population
growth, may provide continued support for housing values.

In terms of commercial real estate, the market has remained relatively
unchanged. In Los Angeles County, industrial vacancy has increased slightly to
2.9% as of June of 2003, with Orange County up as well to 5% and San Diego
unchanged at 7.7%. Average apartment rents in Southern California continue to
increase by 4% annually due to the surge of population moving into the area. The
vacancy rates in the multi-family market remain stable for the same reasons.
Locally, the office market continues to be the weakest real estate market. Los
Angeles County's vacancy rates increased slightly to 14.7% as of June of 2003.
However, our other two markets have shown signs of improvement, with Orange
County's vacancy improving to 15.6%, and San Diego's vacancy improving to 11.9%
as of June 2003.

On a national level, the news today about jobless claims sinking to a five-month
low is possibly an indicator that the economy may bounce back in the second half
of the year. Certainly we will be able to gain more confidence that we're in a
recovery, if this trend continues and when we start to see other economic
indicators pointing in that direction as well. In summary, we believe that we
are well-positioned for the current economic environment with approximately 79%
of our loans secured by residential property and with our 15 branches located in
areas with very strong demographics.

We continue to manage the company to build long-term shareholder value. We thank
you for taking the time to join us on this conference call today, and on behalf
of our employees, management and the board of directors of Hawthorne Financial
Corporation I want to thank our shareholders for your continued support. Now
Mike we'll be ready to respond to any questions.

QUESTION AND ANSWER

OPERATOR

Ladies and gentlemen, if you wish to ask a question, please press star one on
your telephone. If your question has been answered or you wish to withdraw your
question, please press star 2. Questions will be taken in the order they are
received. Again, that's star 1 to ask a question, and our first question comes
from Richard Eckhart with Rock Capital Partners, please proceed.

RICHARD ECKHART - ROCK CAPITAL PARTNERS - ANALYST

Hi Simone, I had a quick question about nonperforming assets. They appear to
have jumped up by 12% after a long period of decline. Were there 1 or 2
particular properties that account for that?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Yes, there was one single family residence for $1.3 million. The loan to value
on that is 65%. It's an individual who moved out of state and there is a
relocation company that has indicated that they would be buying that property,
but that transaction has not happened yet. There have been a few issues. But, I
just want to mention, when you look at it in terms of a percentage increase, it
looks a lot more significant at somewhere about a million-four. And when we're
at the very low levels that we're at, when you think about the fact that there
is only 16 loans in total in the $9 million that we have in nonperforming, you
know, one loan will have an impact in terms of a percentage, but it really is
only one loan that makes up that difference.

RICHARD ECKHART - ROCK CAPITAL PARTNERS - ANALYST

Okay, thank you.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Thank you.

OPERATOR

And our next question comes from Mike McMahon with Sandler O'Neill. Please
proceed.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Good morning. You have an amazingly high percentage of purchase business, and
would I be correct to generally assume that perhaps after one more quarter of
high refinance volume as the final rush of refinance applications close, that
your loan origination volume would remain relatively robust because it's so much
concentrated on purchase business and then at that point, we could perhaps see
some decent sequential quarter loan growth, perhaps in '04? Is that a likely
scenario?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Yes, let me clarify just for the record, because this is going to go out in a
transcript as well. When we talk about a purchase business, the amount of loans
that we purchase is relatively low. I want to make sure it's clear that we're
talking about making loans to people who are purchasing homes. And, yes, we have
an amazingly high level at 70% for this last quarter and 62% for the first half
of the year. We do expect that once prepayments slow, we should be able to again
start growing our loan portfolio as we have in past years, a big part of what's
happened, obviously this year, is the significant prepayments. And we have not
seen a huge increase in our new loan originations in our single family
portfolio, again, we are a variable rate lender. We will continue to be a
variable rate lender and we have a terrific department that really focuses on
turning those loans


around and being responsive to the customer and providing extreme service, and
that's a big part of why they continue to have good, strong originations in
really what has been characterized as a fixed rate market.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Okay. And second question, your guidance on the non-interest income being up,
you are continuing to say that it will be up, will increase by 10%. Is that more
accurate to say that you are projecting it will increase by at least 10%?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Yes.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Okay.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Thank you. Yes, at least 10%.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Great, thank you very much.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Thank you, Mike.

OPERATOR

And our next question comes from Manuel Ramirez with KBW. Please proceed.

MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST

Hi, good morning.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Good morning.

MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST

Couple of questions. First, I was just curious as to whether or not you took
some steps to extend out your liabilities this quarter. It looked -- based on
your market borrowing costs, it looks like that may have happened. Second, can
you talk about your deposit pricing relative to your competitors? I guess what
quartile do you think you are in relative to the market? And I have a couple of
other questions, but I'll follow-up. Thanks.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Okay. In terms of extending out our liabilities, we do continue to work to
extend out our liabilities. I believe our average is now 8.1 months, is that
right?

DAVID ROSENTHAL - HAWTHORNE FINANCIAL CORPORATION - EVP AND CFO

Right.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

8.1 months and that is up a little bit from where we were at year end. We're
continuing to look at other options and obviously as I went through those cost
of funds in those different periods of time, you can see that success that we're
having in lowering our costs of funds, to literally where they are today at 2%,
of deposits, our cost of deposits are 2% today. A significant improvement over
where they were in the last quarter and the first half of the year. Your second
question was --

MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST

Deposit pricing relative to your competitors.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Okay, thank you. We have been working to -- over the last four years, to move
from having been four years ago, one of the higher ratepayers, to really being
more in line with the moderate ratepayers. And we've made great progress in that
regard. The way we look at our pricing, we literally take each week, the
analysis of where the higher ratepayers are, where the lowest ratepayers are and
compare ourselves against both of those as well as the moderate to make sure
we're more in line with the moderate. Having said that, to put it in the form of
what quartile we're in, I'm not sure I could do that and be completely accurate,
but I'd say we'd be in the moderate not the highest not the lowest.

MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST

Right, and that moves around from time to time.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Right, the gap between the two move as well.

MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST

Terrific. Couple other questions. First, usually you give an update on what
percentage of your loan portfolio is at interest rate floors -- I didn't see one
in the press release this quarter. Do you have that number in front of you?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

It is $1.4 million or approximately 60%. 66%, approximately $1.4 million.


MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST

Terrific. And one other question.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

$1.4 billion, I'm sorry.

MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST

I understood what you meant. Just another question on those two branches that
you recently opened. About how big do you think those can get?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Well, our average branch size is still over $100 million, and we continue to
work to grow our branches, so that we continue to have an average branch size
over $100 million. That's our strategy. How long will it take us to get there?
It may take some time, but that is our goal, is to continue to operate very
efficiently in our branch structure by growing the deposits there -- and the way
we do that, we really market within a 3 and 5 mile radius of our branches. One
of the marketing efforts that we're going to be doing in the near term is we've
done an analysis of the money market rates that the brokerage houses are
offering, and our money market rates are significantly better, in large part
because they have -- you know -- the fee for the management of that. So, we're
going to be going out with a marketing within the next two weeks and doing some
very significant calling efforts -- outgoing calling -- to generate some
deposits, just because of that differential.

MANUEL RAMIREZ - KEEFE BRUYETTE & WOODS INC. - ANALYST

Thank you very much, Simone and Dave.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Thank you.

OPERATOR

And our next question comes from Karl Dorf with Dorf Asset Management. Please
proceed, sir.

KARL DORF - DORF ASSET MANAGEMENT - ANALYST

Good Morning: Did you take any security gains or loan gains in the quarter?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

We took a small amount of security gains during the quarter. I want to say it
was about $40,000 in total. David is looking that up as we speak. But it was a
relatively small amount. And that would be found in the other non-interest
revenue line.

KARL DORF DORF ASSET MANAGEMENT - ANALYST

What's the amount of unrealized depreciation that you currently have in your
security portfolio?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

I'm sorry, could you repeat the question?

KARL DORF - DORF ASSET MANAGEMENT - ANALYST

Yeah, what is the amount of unrealized depreciation that you currently have in
your security portfolio?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

About $2.1 million.

KARL DORF - DORF ASSET MANAGEMENT - ANALYST

Thank you.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Thank you.

OPERATOR

And our next question --

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

I'm sorry, let me just clarify that. That's about $2.4 million as of June 30th.
Sorry. Okay.

OPERATOR

And our next question comes from Don Worthington with Hoefer & Arnett, Inc.
Please proceed.

DON WORTHINGTON - HOEFER & ARNETT INC. - ANALYST

Good morning, Simone

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Good morning, Don.

DON WORTHINGTON - HOEFER & ARNETT INC. - ANALYST

Couple of quick questions. One, on the net interest margin guidance, does that
assume flat rates going forward?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Yes, it does.

DON WORTHINGTON - HOEFER & ARNETT INC. - ANALYST

Okay. And then maybe to follow on a little bit with the gentlemen's question on
the securities portfolio, what type of securities are you buying and what's the
average duration of them?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Absolutely. We'll cover that. Again, we have about $348 million in our
securities portfolio. About 43% of that is in 5-1 hybrids. Let me mention that
we have a very small percent in CMOs. The vast majority of our portfolio is in
mortgage-backed securities. Go ahead.

DAVID ROSENTHAL - HAWTHORNE FINANCIAL CORPORATION - EVP AND CFO

Percentage for CMOs is 14%. And the remainder is in mortgage-backed agency type
paper.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

In terms of the effective duration as of June 30th, it was 2.23. The average
coupon on that portfolio is 4.54%. Does that cover most of what you're looking
for?

DON WORTHINGTON - HOEFER & ARNETT INC. - ANALYST

That's terrific, thank you.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Great.

OPERATOR

And our next question comes from Mike McMahon with Sandler O'Neill. Please
proceed.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

I forgot to ask - when you were giving the cost of -- and I think you said in a
subsequent call, deposits, you were referencing 2.3 in the first quarter, 2.2 in
the second quarter, 2.11. Was that cost of deposits?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Cost of deposits. And today our cost of deposits is 2.00%.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Okay. And that, okay...

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

And in part, that was because we had about $288 million that was guaranteed at
2% and we've since lowered that 60 basis points. That helps bring down the cost
of deposits today.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Right. And is it -- am I right to assume through all of your discussion about
your margin, et cetera, that you are actually looking for a slight increase on a
sequential quarterly basis?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Increase in our deposit growth? Is that what you're asking?

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Net interest margin.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

I'm sorry, net interest margin. Yes, the current quarter was 3.18%, and, yes, we
would expect a slight increase to get to that 3.25% to 3.35% for the year.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Okay. And then finally --

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Again, assuming rates remain where they are and prepayments start to slow.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Understood. And then finally, you had a significant decline in personnel expense
on a linked quarter basis, and in looking at your guidance for the efficiency
ratio, et cetera, am I right to assume that you are expecting a very modest
decline in absolute dollar expenses in the second half compared to the first
half?

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Yes.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Okay.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Do you want me to elaborate?

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Yes, please do. We've got all day.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Yes, we did have a decline in employee costs, and as everyone knows, we went
through an acquisition at the end of last year in August. We have become --
worked to become more and more efficient each quarter, subsequent to that
acquisition. We have through attrition been able to have some costs saved on the
employee side. Also, there were some agreements that we entered into with some
of the key personnel of First Fidelity, the institution that we acquired and
there were some expenses therefore associated with those agreements. And those
roll off the first half of this year. So we do expect a small decline in our
overall G&A on a quarter by quarter basis in the last half of the year.

MIKE MCMAHON - SANDLER ONEILL & PARTNERS LP - ANALYST

Great. Thank you very much.

OPERATOR

Once again, if you wish to ask a question, please dial star 1. That's star 1 to
ask a question. And we have no further questions at this time.

SIMONE LAGOMARSINO - HAWTHORNE FINANCIAL CORPORATION - PRESIDENT AND CEO

Okay. Well, in conclusion, again, we just thank everyone for participating on
the call, and we want to just thank, again, our shareholders for their continued
support. Thank you.

OPERATOR

This concludes your conference call. Thank you for your participation today. You
may now disconnect.